Legislation Introduced in Senate for Limited Extension of ITFA

With the Internet tax moratorium set to expire in less than three weeks, several bills have been introduced in the U.S. Senate calling for limited extensions to the ban on new and discriminatory taxes on the Internet and Internet access taxes.

On October 2, Senators John McCain (R-Arizona), Ron Wyden (R-Oregon) and Patrick Leahy (D-Vermont) introduced S. 1481, the Internet Tax Moratorium Extension Act. S. 1481 seeks only a two-year extension of the moratorium, and urges the states to "expedite efforts to develop a simplified streamlined plan for protecting State revenues affected by Internet use." Senators Byron Dorgan (D-North Dakota) and John Breaux (D-Louisiana) have recently introduced a bill to extend the moratorium until June 2002.

While these bills do not specifically include the burdensome sales tax "simplification" issues that have thus far thwarted progress on adequately extending or making permanent the moratorium, a limited extension of two years or less will do nothing to provide much-needed stability to the Internet and e-commerce. Instead, these bills would hamper the prospects for future growth in the new economy by implanting further uncertainty in an already crippled and bludgeoned technology market.

Senators McCain, Wyden and Dorgan have been key participants in negotiations to grant states authority to enter into an interstate compact to force their tax collection burdens for online transactions onto out-of-state businesses. Without Congressional authority, the states are forbidden from doing so if the retailer does not have a substantial physical presence or "nexus" in the state. These negotiations and unsubstantiated claims of tax revenue loss from many governors who see the Internet and e-commerce as a substantial new revenue source are holding hostage an adequate extension of the non-controversial provisions of the Internet Tax Freedom Act (ITFA) passed in 1998.

The Center for Individual Freedom has been arguing vigorously to remove the totally separate sales tax "simplification" issue from the debate altogether, and urging Congress to move forward with adequately extending or making permanent the moratorium.

McCain, Wyden and Dorgan’s latest efforts in introducing legislation for a limited extension of the moratorium are specifically and cynically calculated to keep the divisive sales tax issue tied to a substantial or permanent extension of the moratorium.

Moreover, the McCain-Wyden and Dorgan-Breaux bills are intended to undermine more responsible efforts to extend the moratorium for a reasonable time. The House Judiciary Committee is preparing to mark-up legislation, H.R. 1552, introduced by Representative Christopher Cox (R-California) to extend the moratorium on new and discriminatory taxes for five years, and make permanent the ban on Internet access taxes. Senator George Allen (R-Virginia) has sponsored S. 777, to make permanent all of the provisions in ITFA and is preparing to introduce legislation to extend the current moratorium for five years — the minimum amount of time necessary to erase current uncertainty about the future growth prospects of e-commerce.

It is imperative that Congress moves beyond the sales tax "simplification" issues to pass an extension of the moratorium of no less than five years. The Internet and e-commerce should never be subject to new, multiple and discriminatory taxes that don’t apply to offline commerce. When will it ever be right to tax Internet access?

The sales tax issue can be dealt with separately, once there is conclusive evidence that state governments are losing substantial revenue due to Internet sales, and the numerous benefits that result from e-commerce do not outweigh such losses. That cannot be established in two years or less, particularly in this faltering economy.

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