U.S. House Paves Way for Net Tax Ban Extension

The U.S. House Judiciary Committee on Thursday cleared the way for a full House of Representatives vote next week to extend the ban on Internet taxes through October 2006. By a 29-8 margin, the committee approved legislation to extend the existing moratorium on new Internet taxes that had been due to expire in October of 2001.

“Today’s committee vote sends a clear message to the American people — we’re going to keep the Internet tax free,” said House Majority Leader and Texas Republican Dick Armey.

If signed into law, the bill will also eliminate a “grandfather” clause in the current arrangement that allows some states to continue collecting Internet access fees that were imposed before the moratorium took effect.

Party Lines

Traditionally, the House Judiciary Committee votes after formal hearings take place. Thursday’s action, taken without formal hearings, prompted criticism of the GOP leadership by some House Democrats, who are accusing Republicans of rushing the process to take advantage of the Internet tax issue in the U.S. presidential campaign.

Democrats charge that Republicans are backing the Internet tax moratorium bill to stay in the good graces of powerful high-tech companies.

Because the current moratorium is effective until October 2001, opponents to the committee’s action say there is no reason to push the bill through without further study and debate on the issues.

Steve Pfister, senior vice president for government relations of the National Retail Federation (NRF), believes the committee’s vote is premature. “While retailers oppose new taxes on the Internet, the industry believes that Congress should not extend the current moratorium without addressing the inequality in state sales and use tax systems,” Pfister said.

Simplifying State Taxes

Critics of the fast-track approach are also concerned that the issue of individual states simplifying their tax systems will stay on the back burner.

The chairman of the House Judiciary Committee, Representative Henry Hyde (R-Illinois), begs to differ.

“There appears to be some sentiment that our consideration of today’s bill is a signal that Congress is unwilling or uninterested in addressing these sale and use tax issues,” Hyde said on Thursday. “I can assure you nothing is further from the truth.”

Claiming broad bipartisan support for an extension of the tax moratorium, Hyde said, “There is no reason to hold hostage the continuation of these principles while we search for a perfect solution.”

Lobbyists Aligned

In addition to the tax moratorium, the House will also consider two other Internet-related bills: one would prohibit any tax on Internet access, while the other would repeal the three percent telephone excise tax first enacted to finance the 1898 Spanish-American War. The telecommunications tax repeal is the only issue on which Senate and House members have indicated agreement.

The Software and Information Industry Association (SIIA), the American Electronics Association and the National Association of Manufacturers (NAM) have all come out strongly in favor of all three tax bills.

The three measures are also supported by the president’s Advisory Commission on Electronic Commerce (ACEC), according to that commission’s recent report to Congress.