By: Larry Margasak, Associated Press Writer
(AP) President Bush will sign legislation that extends a moratorium on Internet-related taxes for two years, although he preferred a longer period of tax relief.
A voice vote in the Senate on Thursday renewed the tax ban that was enacted three years ago but expired Oct. 21.
Senators rejected an amendment that could have led to future collection of state taxes on Internet sales and even Internet access. The proposal would have required a congressional vote to allow sales tax collections after 20 states agreed to collect for each other.
The state compact plan failed when senators voted 57-43 for a procedural motion to kill the measure.
“The administration believes that government should be promoting Internet usage and availability, not discouraging it with access taxes and discriminatory taxes,” the White House said in a statement supporting the legislature. “While a five-year extension would be preferable, a two-year extension will provide additional time to analyze the impact of e-commerce on local and state tax receipts.”
Senators favoring a simple extension said they would continue to negotiate with senators backing the state compact. They argued that more study was needed before a system was put in place that could allow a state to impose a direct tax on residents of another state.
Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, said a simple extension was the best course for now, because “The devil is always in the details.” One problem would be to ensure that state tax rates would remain uniform, he said.
Sen. Byron Dorgan, D-N.D., a co-sponsor of the rejected amendment, said, “State and local governments are concerned about funding for schools and fairness for Main Street retailers.”
He said states would have been required to dramatically simplify their sales tax systems and then submit the proposal to Congress. He said the issue would not go away.
Uncollected state sales taxes on electronic commerce were estimated at nearly $26 billion in 2000.
States favoring taxes on Internet-related sales are backed by most traditional retailers, including many of the nation’s largest chains, who say Internet competitors have an unfair advantage. Companies that rely on Internet sales oppose the taxes.
Unlike brick-and-mortar competitors, businesses engaged in e-commerce have benefited from not having to pay state and federal taxes on money earned from online transactions. The moratorium also has prevented online buyers from possibly paying taxes on their Internet access accounts.
Anti-tax lawmakers said tax collections would drag down a key economic engine when the economy already is suffering.
Sen. Ron Wyden, D-Ore., who favored the simple extension, said Americans don’t want to be taxed when they log on the Internet for their news, weather, and sports. He said there was danger in a “crazy quilt” tax system that would “chew up a vast amount of time for compliance.”