Lawmakers Renew Fight for Internet Tax Ban

U.S. House of Representatives Policy Chairman Christopher Cox (R-California) announced Monday that he and Senator Ron Wyden (D-Oregon) will mount a fresh challenge to Internet taxation this legislative session by introducing a new “Internet Non-Discrimination Act.”

The bill is the latest version of Cox and Wyden’s Internet Tax Freedom Act III, which did not make it through the Senate before Congress adjourned for the year in November. It would make permanent the three-year moratorium set in October 1998 on new, special and discriminatory Internet taxes.

That 1998 law, also authored by Cox and Wyden, established the Advisory Commission on Electronic Commerce (ACEC), which is studying various domestic and international Internet issues. The commission is slated to report to Congress in April on the current state of electronic commerce and make recommendations about tax policy, online privacy and security and other issues.

With or Without Commission Backing

Regardless of what the final report says, Cox and Wyden are convinced that a permanent moratorium is in order. Since the temporary ban took effect, they argue, “online consumers have been threatened by a growing number of tax proposals, ranging from an inconsistent hodge-podge of state and local sales and use taxes to the creation of a new ‘unified’ federal sales tax.”

The two legislators say they would rather wipe the slate clean going forward than allow these other taxation proposals to create “bureaucratic nightmares” for U.S. consumers.

“You can’t squeeze the new economy into policies written for smokestack industries,” Wyden said. “With our Internet Tax Freedom Act, Chris Cox and I put a temporary stop to the reckless, special taxing of the Internet. Now it’s time to make that ban on discrimination permanent.”

The question of whether and how to tax purchases made over the Internet and shipped over state lines remained a sticky one throughout 1999, when a half-dozen different bills were introduced on Capitol Hill. None of the domestic Internet tax bills emerged as laws before Congress adjourned, primarily because most members of Congress are believed to be awaiting the Advisory Commission’s report before they decide how to vote on the issue.

International Success in 1999

Cox and Wyden did, however, push through a bill commissioning the U.S. government to push for a permanent moratorium on new Internet taxes in international electronic commerce. That law calls upon the World Trade Organization (WTO) to permanently ban e-commerce tariffs, states the U.S. government’s opposition to “multiple, discriminatory or special taxes” that could give some countries advantages over others, and rejects the idea of a “bit tax,” which would charge a fee for electronically-delivered information such as e-mail.

In the domestic tax dispute, Cox and Wyden say there is no data to support the claims made by many local government officials that e-commerce is doing harm to brick-and-mortar retailers. Local governments have been calling for the ability to force online retailers to collect the appropriate sales tax from each of their customers based on the state in which the customers live. The retailers would then be required to pass those tax revenues back to the states for which they were collected.

According to Cox and Wyden, “consumers, businesses and state and local governments have thrived under the moratorium” that was enacted in 1998. The Internet commerce growth encouraged by the tax moratorium contributed to bigger state budgets that ended fiscal 1999 with a combined $35 billion (US$) state budget surplus, the legislators say.

In addition, Cox and Wyden assert that the moratorium was “a boon” to storefront retailers, who reported an eight percent increase in sales at the end of 1999 compared to 1998. However, Cox and Wyden do not explain why they think that increase is linked to the Internet tax moratorium and not the surging U.S. economy.

“Across the nation, sales tax revenues to the states are way, way up. In California, sales taxes grew 12 percent in 1999, thanks to spectacular growth in the new economy, ” Cox said. “The evidence is now in: keeping discriminatory taxes off the Net is good for consumers, entrepreneurs, and the governments that tax them.”