E-COMMERCE Online tax moratorium debated

An extension of the October deadline is stuck in Congress.
KNIGHT RIDDER NEWSPAPERS
WASHINGTON -- Most House and Senate lawmakers appear to agree that a moratorium on e-commerce taxes is good for the Internet and the economy. But less than four months before a ban on those taxes expires, Congress is still fighting over the details of a bill to extend the moratorium.
Congress in 1998 passed a law that prevented states and other local authorities from imposing taxes on e-commerce that don't apply to traditional retailers, and it also banned taxes on Internet access. The moratorium expires in October and, if not renewed, states would be free to impose taxes at will on the Internet.
The House last year overwhelmingly approved an extension of the ban and industry lobbyists expect it to do the same this year. But the outlook in the Senate is more uncertain. Legislation introduced in the Senate would link the moratorium to a broader plan forcing states to simplify their tax systems, and a group of six Senators has been haggling over the bill for weeks.
Tax collection
At the heart of the debate is how to simplify state and local sales taxes, making it easier for e-commerce companies to collect sales taxes from consumers around the country. Today, states are losing billions of dollars in tax revenue because e-tailers and catalog companies aren't required to collect sales taxes -- unless they have a physical presence in the state.
Consumers are supposed to declare their online purchases to their home state, and pay the taxes on their own. But that rarely happens because consumers are unaware or don't care.
The Senate is looking at requiring e-tailers and catalogers that sell across state boundaries to collect sales tax, but only once states have simplified their complicated tax structures. How that should be done is the key sticking point in negotiations over the bill. Six Senators on the Commerce Committee are working to hammer out a compromise, and negotiations are expected to resume this week.
Retailers, state governors, and e-tailers have been fighting over this issue since the birth of e-commerce. Worried that the thorny issue can't be resolved in the next few months, a number of Republican House legislators recently called on Congress to pass a bill extending the Internet tax moratorium without the other issues attached.
"The risk of having the moratorium expire is enormous if we load on these admittedly important other issues," Rep. Christopher Cox, R-Calif., told the House Judiciary Committee's panel on commercial and administrative law.
Governors weigh in
Two governors appearing before the panel were split on what should be done. Michigan Governor John Engler, vice chairman of the National Governor's Association, said that a level playing field should be created between brick-and-mortar retailers that collect sales taxes, and Internet retailers that don't. "The Internet should not be a way for buyers and sellers of goods to avoid existing obligations."
Engler said an extension of the moratorium "doesn't matter much" because no states plan to impose discriminatory taxes on the Internet.
Virginia Gov. James Gilmore, chairman of Congress' Advisory Commission on Electronic Commerce, told the panel that letting the moratorium lapse in the hopes of creating a simplified tax structure "is probably not in the interest of the country."