*House Extends Internet Tax Moratorium

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The U.S. House of Representatives passed the Internet Non-Discrimination Act, H.R. 3709, yesterday by a vote of 352-75. Now, the bill, which extends the current nationwide ban on new, special and discriminatory Internet taxes for five years, will move to the Senate, where it is likely to face a harder fight.

The current moratorium is set to expire Oct. 21, 2001. The bill would extend the ban until Oct. 21, 2006.

The Senate debate over the bill will likely see fierce arguments from special interest groups on both sides of the Internet tax issue.

"State and local tax officials and governors have lined up major retailers and real estate companies to help them do battle," said Roscoe B. Starek, senior vice president, catalog industry at the Direct Marketing Association, Washington.

Direct marketers are happy with the vote to extend the moratorium because it "gives the states the time to simplify," Starek said.

In addition, they are pleased that the bill leaves the rules governing state or local governments' ability to collect regular sales or use taxes on remote sales untouched. These rules, set by the U.S. Supreme Court, say a state can't collect taxes unless an Internet or catalog business has a physical presence in that state.

"The rule of previous U.S. Supreme Court decisions is clear," Starek said. "It makes no difference if you are a bricks-and-mortar store, catalog or online e-tailer. A marketer now has the responsibility to collect and remit taxes only for those states where it has a physical presence. Extending the moratorium to 2006 ensures that this fair system, supported by two decisions of the Supreme Court, remains the law of the land."

In addition to banning new taxes for five years, the bill would:

* Leave unchanged state and local taxes on Internet sales and services and allow e-sales to be taxed the same as mail order, catalog and telephone sales;

* Bar taxes that subject buyers and sellers to taxes in multiple states;

* Kill certain grandfather clauses that allowed some states to tax Internet sales before the original 1998 Internet Tax Freedom Act passed. Those states are Connecticut, Wisconsin, Iowa, North Dakato, South Dakato, New Mexico, Ohio, South Carolina, Texas and Tennessee.
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