Extension of Internet Tax Moratorium Held Hostage by Our Nations Governors
It is unfortunate
that our nations governors and their supporters on Capitol Hill are
holding hostage an extension of the Internet tax moratorium set to expire
in October. Apparently, more than 40 governors are sending a letter to Congress
urging them not to extend the ban on new Internet taxes unless states are
granted permission to shift their sales and use tax collection burden to out-of
state merchants. In 1998, Congress passed the Internet Tax Freedom Act (ITFA) to protect
the Internet and e-commerce from the inconsistent patchwork of taxes by
more than 7,500 taxing jurisdictions in this country. ITFA prohibits Internet
access taxes, multiple taxation of a single transaction by more than one
taxing jurisdiction, and discriminatory taxes that do not apply to offline
purchases.
Lets make one thing clear. E-commerce transactions are not tax-free.
Such transactions are subject to the same sales tax that consumers would
have to pay at traditional brick-and-mortar retailers. The difference is
online merchants are not required to collect and remit these taxes unless
the retailer has a substantial physical presence, or "nexus," in the state.
This according to a 1992 U.S. Supreme Court decision in Quill Corp. v.
North Dakota.
As the deadline for the moratorium approaches, these governors are trying
to force Congress to reverse Supreme Court precedent, and force non-resident
businesses to collect and remit their taxes for them. Such authority would
be detrimental to the future growth of e-commerce, as online businesses
would be forced to bear the unfair and expensive burden of complying with
the thousands of taxing jurisdictions in this country.
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 the 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.
Time is running out. It is imperative that Congress passes a clean and
permanent extension of the Internet tax moratorium before its too
late.
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