Congress' role should be to ensure the states do not unfairly export this burden, thereby obstructing interstate commerce.

House Moves to Make
Internet Tax Moratorium Permanent

Legislation to make permanent the Internet tax moratorium originally passed by Congress in 1998 cleared its first hurdle in the U.S. House of Representatives last week.  The House Judiciary Commercial and Administrative Law Subcommittee approved by voice vote H.R. 49, the Internet Tax Nondiscrimination Act, sponsored by Representative Chris Cox (R-CA).  The current moratorium is set to expire in November.

In addition to making permanent the ban on Internet access taxes and multiple and discriminatory taxes on e-commerce transactions, H.R. 49 seeks to revoke a grandfather clause in the original legislation that permits 10 states to tax access to the Internet.  Cox's bill does not address the separate and controversial issue of sales and use tax collection, a.k.a. "simplification."

The legislation now moves to the full Judiciary Committee where it is sure to face obstacles.  While the moratorium itself is blessed with widespread support, including that of President George W. Bush, cash-hungry states and traditional brick-and-mortar retailers opposed to online competition are again seeking to tie the controversial "simplification" effort to the moratorium.  They are hoping to convince their friends in Congress to force remote vendors to collect and remit states' sales and use taxes, currently prohibited without Congress' approval by the U.S. Supreme Court's 1992 Quill decision. 

With a permanent moratorium gaining traction, as opposed to a simple two-year extension like the one passed by Congress in 2001, the states will undoubtedly double their efforts to tie the two issues together, lest they lose the politically popular moratorium as a legislative vehicle to circumvent Quill. 

As the Center has argued time and time again, it should not be Congress' role to provide a mechanism for states to shift their tax collection burden to out-of-state retailers as a result of states' failure to collect sales and use taxes from their citizens. Congress' role should be to ensure the states do not unfairly export this burden, thereby obstructing interstate commerce.  At the very least, as pointed out by Commercial and Administrative Law Subcommittee Chairman Chris Cannon (R-UT), "the two issues should be dealt with separately."

Congress' resistance thus far to imposing over-burdensome regulations and taxes on the Internet has enabled it to grow and thrive as a tool for education, opportunity and commerce like never before seen.  The efforts of those who see this fantastic medium as nothing more than a new government cash cow, if successful, will grind its progress to a screeching halt. 

With the expiration of the current moratorium rapidly approaching, Congress should resist the states' "simplification" plan and make permanent the Internet tax moratorium.

• To read more about the states' "simplification" plan, click here.
  
  
• To learn more about the Internet taxation debate, click here.

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