House Committee Passes Internet Tax Bill

By unanimous vote, the House Judiciary Committee this week passed the Internet Nondiscrimination Act, which extends by two years the ban on multiple and discriminatory taxes on Internet commerce and permanently bans all Internet access taxes. The bill left out a provision that would have made it easier for states to tax remote sales.

The bill, sponsored by Rep. Christopher Cox, R-CA, now moves to be considered by the full House.

The bill is a weakened version of the original, which called for a permanent ban on access taxes and a five-year extension of the ban on other discriminatory taxes.

Congress passed the original moratorium, part of the Internet Tax Freedom Act, in October 1998, imposing a three-year moratorium on Internet access and multiple and discriminatory taxes. The moratorium is set to expire Oct. 21.

As of yesterday, debate in the Senate continued.

Earlier this month, two e-commerce bills were introduced in the Senate.

One bill, introduced by Sen. Byron Dorgan, D-ND, proposes extending the moratorium until June 30, with the hope that it would spur lawmakers to reach an agreement on the ability of states to tax online purchases.

Another bill, introduced by Sens. Ron Wyden, D-OR; John McCain, R-AZ; and Patrick Leahy, D-VT; proposes extending the moratorium by two years while giving lawmakers a chance in two years to agree on the ability of states to tax online purchases.

The Direct Marketing Association objects to coupling the moratorium issue with language about remote sales taxes, which is the subject of a major debate.

“Any discussion of the controversial sales tax debate should be saved for an appropriate time when there is no pressure of a looming Oct. 21 deadline for the extension,” said H. Robert Wientzen, president/CEO of the DMA. “At this time, Congress should pass an extension of two to four years of the moratorium and not link it to other divisive issues.”

In general, the DMA favors the House bill.

“Saddling a popular and needed piece of legislation with unresolved issues cripples its chances of passage,” said Frank Julian, chairman of the DMA's Use Tax Committee and operating vice president and tax counsel of Federated Department Stores Inc. “The House bill rightly created two distinct legislative agendas that are not held hostage to one another.”

Meanwhile, Michigan Gov. John Engler this week signed legislation allowing the state to join a multistate sales tax simplification bill aimed at easing collection from out-of-state and Internet retailers.

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