May 23, 2003, 9:12 AM — A U.S. House subcommittee has approved a bill that would permanently extend a moratorium on some Internet taxes, including Internet access taxes, despite Democrats' concerns over the impact on Mom-and-Pop businesses and whether the bill ensures a tax ban on DSL (Digital Subscriber Line) access.
The Internet Tax Nondiscrimination Act prohibits the 7,500-plus taxing jurisdictions in the U.S. from creating taxes unique to the Internet, including bit taxes, which tax Internet information as it moves across servers in many taxing jurisdictions. A current moratorium on such taxes, first passed in 1998, expires Nov. 1, and the U.S. House Judiciary Committee's Subcommittee on Commercial and Administrative Law voted by voice Thursday to send the new bill on to the full committee with a recommendation of passage.
Subcommittee Chairman Chris Cannon, a Utah Republican, pushed for the bill by saying an Internet access tax would hurt Internet service providers and hinder the growth of e-commerce, which makes up only about 1 percent of U.S. retail sales, during a time when the Internet sector is struggling financially. "Now is the worst time to subject the Internet to additional taxation," Cannon added.
The Internet Tax Nondiscrimination Act does not prohibit jurisdictions from levying sales taxes against Internet companies, as the moratorium has sometimes been misunderstood to do. The new bill does require states and other taxing jurisdictions to treat Internet sales the same way they treat other nonlocal sales, such as catalog and telephone sales. The U.S. Supreme Court has barred states from collecting sales taxes on retailers who don't have a physical presence within their borders.
Representative William Delahunt, a Massachusetts Democrat, offered an amendment that would commit Congress to work on legislation that would help states collect sales taxes from remote retailers, but he withdrew the amendment after Cannon promised hearings on sales tax collections.
Many states are "confronting their worst budget crisis since the Great Depression," Delahunt said, and small businesses are hurt because they have to collect sales tax when Internet and catalog companies from out of state do not. "By failing to ensure sales tax parity between remote sellers and Main Street merchants, we are putting at risk the thousands of small businesses that sustain our economy and contribute so much to our neighborhoods and communities," Delahunt added.
The current moratorium "grandfathered" in 10 states that had Internet access taxes before it passed, but the new bill would eliminate those taxes. Representative Tammy Baldwin, a Wisconsin Democrat, offered an amendment to restore the grandfather clause, but also withdrew it, saying she hoped the committee would work toward a "satisfactory resolution" to the problem in the future.