Senate Committee Holds Hearing on Internet Tax

The Senate Finance Committee yesterday continued deliberations on whether to extend the current Internet tax moratorium, which expires Oct. 21, and, if so, whether it should be permanent.

In addition, the hearing examined whether, and under what conditions, states should be authorized to collect sales and use taxes on sales of goods and services over the Internet. The hearing also addressed the issue of sales tax simplification.

Meanwhile, the House Judiciary subcommittee on commercial and administrative law plans to consider two bills today that would extend the current moratorium on Internet access taxes and other Internet-specific taxes.

Both bills are sponsored by California Republican Rep. Chris Cox. One bill would extend the moratorium for five years, while another would make it permanent.

Neither bill addresses whether states should be encouraged to simplify their sales-tax codes to enable them to tax online commerce.

Witnesses at the Senate committee hearing included representatives from the Direct Marketing Association, the National Conference of State Legislatures and the National Governors Association.

The DMA urged the committee to support the extension of the moratorium on Internet access taxes as well as on new and discriminatory taxes on the Internet.

The DMA also said that if lawmakers decide to address the sales tax collection issue, Congress should require states to simplify the patchwork of 7,600 varying sales tax codes. Simplification must occur before the states are permitted to force remote sellers to collect sales tax, which the Supreme Court currently prohibits unless the seller has a physical presence, or nexus, in a state.

Frank Julian, operating vice president and tax counsel for Federated Department Stores and chairman of the DMA's Use Tax Steering Committee, told the Senate committee that any sales tax simplification plan must:

o Establish one tax rate per state for all commerce, both remote and over-the-counter.

o Establish simple and uniform sales and use tax rules that reduce compliance burdens for all taxpayers.

o Provide a reasonable collection allowance to compensate all sellers for the burdens of collecting the tax.

o Enact nexus standards for business activity taxes that eliminate uncertainty and the potential for double taxation.

o Prevent multiple and discriminatory taxes on Internet commerce by extending the application of established nexus rules to remote commerce.

o Prohibit taxes on access fees.

Julian said that lawmakers realize they have to act soon because Congress is expected to break for a recess until Labor Day.

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