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DMers Happy With New I-Tax Moratorium

Direct marketers said they were pleased that the U.S. Senate passed a bill that would provide for a two-year moratorium prohibiting sales taxes on items bought through the Internet.

The House of Representatives last month approved an identical bill, which President Bush supports. Bush is expected to sign the bill, H.R. 1552, into law next week.

The Direct Marketing Association said it supports the extension of a clean, two-year moratorium on Internet access taxes and on sales taxes on e-commerce.

“The moratorium's extension will allow businesses to develop and stretch their wings on the Internet,” said H. Robert Wientzen, the DMA's president/CEO.

Frank Julian, operating vice president and tax counsel of Federated Department Stores Inc. and chairman of the DMA's Use Tax Steering Committee, said, “Resolution of the Internet access tax moratorium is a victory for the economy because it reduces the amount of uncertainty firms have about whether states will effectively reduce online traffic by putting up toll roads.”

The Internet Tax Freedom Act, passed in 1998, expired Oct. 21 when lawmakers could not agree whether to include a provision that would encourage states to simplify sales tax collection in their estimated 7,600 jurisdictions.

The new moratorium, which also covers Internet access taxes, will be in effect until Nov. 1, 2003.

The Senate also voted 57-43 to table an amendment by Sens. Mike Enzi, R-WY, and Byron Dorgan, D-ND, that would have made permanent the prohibition on Internet access taxes and would have extended the sales tax moratorium through Dec. 31, 2005.

The amendment, however, included a trigger whereby states would be authorized to compel remote sellers to collect sales and use taxes if 20 states agreed to simplify their sales tax structures and develop a so-called Interstate Simplified Sales and Use Tax Compact. The states could submit the compact to Congress, which would have 120 days to consider the plan under fast-track procedures. The amendment also would have given states flexibility on the number of rates per state as long as they gave sellers “the necessary information to identify applicable state and local sales or use tax.”

Enzi said he supported the bill in its current form but that the Senate squandered a valuable opportunity to encourage the development of a tax system that creates a level, fair system for all — businesses, government and the consumer — when it failed to adopt the amendment. Both senators also said they would continue to press the issue in hopes of reaching a compromise.

As a result, the DMA and other organizations have pledged to continue watching the situation.

The issue stems from the Internet's dramatic growth and from the U.S. Supreme Court's 1992 ruling known as the Quill Decision, which prohibits a state from taxing the remote sales of companies that lack a physical presence in the state.

State officials and retail industry groups have been pressing Congress for that authorization. They contend that besides providing states a new revenue source, it would level the playing field between remote sellers and local brick-and-mortar retailers that are required to collect sales taxes from customers.

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