Senate Passes 2-Year I-Tax Moratorium

The U.S. Senate passed by voice vote late last week H.R. 1552, a bill that would provide for a two-year moratorium prohibiting sales taxes on items purchased through the Internet.

The House of Representatives last month approved an identical bill, which drew support from President Bush. The bill is expected to go straight to Bush for signature into law.

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 Mike Enzi, R-WY, 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 included a trigger where if 20 states developed a so-called Interstate Simplified Sales and Use Tax Compact, the states could submit the compact to Congress, which would then 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 supports 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 playing field for all – businesses, government and the consumer – when it failed to adopt the amendment.

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

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. This moratorium also provides an excellent opportunity for e-commerce to continue to develop and flourish.”

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