WASHINGTON-For the third time lawmakers are attempting to pass a permanent Internet tax moratorium.
Legislation introduced last week in both the House and the Senate would make permanent a moratorium that has been in place since 1998 but expires in November. The moratorium would preclude states from assessing taxes on Internet access or from establishing multiple and discriminatory Internet taxes.
The Internet tax has possible implications for wireless carriers who wish to engage in mobile commerce or other Internet services via mobile phones.
The high-tech sector worries that if the moratorium is allowed to lapse that states will rush in to tax Internet access and services.
“The Internet does not deserve carve outs or special treatments. Neither does it deserve to become the tax pinata of 2003, hit by every revenue starved taxing jurisdiction in the country,” said Harris Miller, president of the Information Technology Association of America.
Miller testified at a hearing by the House commercial and administrative law subcommittee. The subcommittee hopes soon to mark up the bill, said Chairman Chris Cannon (R-Utah).
There is also concern that states will try to tax bits and bytes that travel through a state by claiming the presence of a server or other network element is sufficient presence to tax the information. The Supreme Court has held that a state may only assess a sales tax on items purchased from a seller with a sufficient “nexus” (presence) in its state. Under the high-tech sector’s theory a state would assess a tax on an item purchased from a buyer where neither the seller nor the purchaser had a presence in that state.
All may not be smooth sailing, however for those wanting to make the Internet tax moratorium permanent. Rep. Zoe Lofgren (D-Calif.) has introduced legislation to extend the moratorium for five years. This approach is favored by the Federation of Tax Administrators.
The Internet Tax Nondiscrimination Act “should be extended for not more than five years to insure that its impact on state and local revenues is examined periodically and that unintended consequences are not occurring,” said Harley Duncan, FTA’s executive director.
Another obstacle that proponents of the permanent moratorium have faced in the past-requiring them to accept a time-limited moratorium-is that the issue often gets mixed up with efforts to reform the state sales-tax system.
Cannon said his subcommittee will examine the sales-tax issue in a separate hearing but it kept coming up at last week’s hearing.
