Panel OKs Extending Internet Tax Ban

By: Curt Anderson, AP Tax Writer

(AP) A moratorium barring taxes on the Internet would be extended for five years under legislation approved Thursday by a House subcommittee.

The panel sidestepped the more complex issue of whether state sales taxes should apply to Internet transactions.

By voice vote, the House Judiciary subcommittee approved the measure, by Rep. Christopher Cox, R-Calif. It is expected to reach the House floor in September.

The current three-year moratorium barring taxes on Internet access and taxes that single out the Internet expires Oct. 21. The measure approved Thursday would extend that ban until Dec. 31, 2006.

Many governors, state legislators, local officials, and traditional retailers want Congress to let states set up a compact to collect sales taxes on Internet and other remote purchases. Unless a business has a physical presence in a state, the Supreme Court has ruled that the state can’t force the business to collect the tax. Consumers still owe the tax, but few ever pay it.

Rep. Mel Watt, D-N.C., tried to attach an amendment that would give states five years to simplify their sales tax systems and permit Congress to vote on such a compact in 2006 if at least 25 states reach agreement.

But the panel’s chairman, Republican Rep. Bob Barr of Georgia, rejected the amendment, saying it was unrelated to an extension of the Internet tax moratorium. House GOP leaders favor a clean moratorium extension, despite concern among many in the party about erosion of state revenue as Internet sales grow.

A bipartisan group of senators has been negotiating for months over the sales tax issue without reaching a deal.

The bill is H.R. 1552

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