Congress Debates Moratorium on Internet Taxation.

• Author: BUCHALTER, ALICE

In 1998, the U.S. Congress enacted the Internet Tax Freedom Act (Public Law 105-277). The Act established a three-year moratorium (until October 2001) on the imposition of new state and local taxes on Internet access, as well as on multiple or discriminatory taxes on electronic commerce. The Act also grand fathered state and local taxes on electronic commerce that exist in 10 states. This legislation mandated the establishment of an advisory commission, including state and local representatives, to study the taxation of electronic commerce and all forms of remote commerce. The Act required the commission to complete its study within 18 months and transmit its findings, including any legislative recommendations, to Congress.

The Advisory Commission on Electronic Commerce, established pursuant to the Act, was chaired by Virginia Governor James Gilmore, and met four times. The meetings were contentious, and a wide range of views was presented. At the commission's final meeting in Dallas, Texas, in March 2000, it voted on a number of proposals. Some of these proposals received a two-thirds majority vote, and according to the mandate of P.L. 105-277, represent findings and recommendations of the commission. These proposals relate to privacy implications of Internet taxation, the establishment of state-local partnerships with the private sector to increase public accessibility to computers and the Internet, and international tariffs.

Of key significance to state and local governments are the majority proposals of the commission that did not receive the requisite two-thirds vote of the commission, and do not, under the terms of the Internet statute, constitute formal findings and recommendations. The proposals address sales and use taxes, business activity taxes, and Internet access. They include:

* extend the current moratorium on multiple and discriminatory taxation of electronic commerce for five years,

* make permanent the current moratorium on Internet access taxes, including those grandfathered under P.L. 105-277,

* prohibit the taxation of digitized goods for sale over the Internet, and

* encourage state and local governments to work with and through the National Conference of Commissioners on Uniform State Laws in drafting a uniform sales and use act that would simplify collection of state and local sales and use taxes.

Numerous bills are under consideration by Congress addressing taxation of the Internet after the current moratorium...