Today, Congress is scheduled to consider an extension of the current
moratorium on Internet taxes, prompting one lawmaker’s plea for the
anti-Net tax movement to “slow down.”
H.R. 3709, introduced by
Rep. Chris Cox, R-Calif., and
Sen. Ron Wyden, D-Ore., would continue the current moratorium on taxes on Internet access, double-taxation (for example, by two or more states) of a product or service bought over the Internet and discriminatory taxes that treat Internet purchases differently from other types of sales.
|Rep. Chris Cox, R-Calif., introduced a measure to extend the current moratorium on discriminatory Internet taxes, which will be voted on today in the House.|
Rep. Ernest Istook, R-Okla., believes the bill would stall efforts to simplify sales taxes — a task promoted by the
National Governors Association, which also advocates taxing Internet sales across state lines.
In a letter to his colleagues, Istook urges members of the House of Representatives to oppose the moratorium extension, saying, “H.R. 3709 (titled the “Internet Nondiscrimination Act”) is being rushed to the House floor, ignoring concerns expressed by 39 of the Governors, and denying time for states and cities to comment.”
He notes the current moratorium extends until Oct. 21, 2001, giving the House almost 18 months to act on an extension.
“Why the rush?” Istook asks. “Because Washington politicians are scrambling to show who can be ‘friendliest’ to the Internet community — and win their political support — even if it means turning a deaf ear to other business and ignoring common sense.”
Advisory Commission on Electronic Commerce, formed by Congress to deal with the issue of Internet and sales taxes, spent nearly a year debating the subject. The commission’s final report was submitted to Congress in April, and some of its recommendations are the basis of H.R. 3709.
“The ACEC proposal, incorporated now into H.R. 3709, would disrupt the financing of state and local services and likely devastate education funding, which represents over 35 percent of the average state budget,” Istook’s letter continues. “None of those governors proposed any Internet-based tax. All they ask is that any ‘moratorium’ include an effort to create a long-term solution, rather than ignoring the problem while it grows worse.”
“Unless H.R. 3709 is fixed dramatically, to include an effort to find a long-term solution, with a reasonable time scale, it should be rejected,” he concluded.
However, Cox, one of the bill’s co-sponsors, told colleagues the measure has nothing to do with sales taxes. Rather, it simply extends the moratorium already in place.
In his letter, Cox quotes the National Governors Association’s acknowledgment that the current moratorium “sets no restrictions on whether states can tax sales over the Internet.”
Istook’s opposition to the bill stems from his belief that it will set a precedent for “the idea that there’s going to be a separate standard for Internet businesses,” according to spokeswoman Micah Swafford.
The bill creates a “weapon” that will keep the “problem” of sales taxes from being fixed, she said.
The crux of the Internet taxation argument is whether e-businesses should collect taxes on sales made in states where an e-merchant is not physically located — known as “nexus.” Taxing consumers where no nexus exists is unconstitutional, because of the interstate commerce clause. Article 1, Section 9, Clause 5 of the Constitution states: “No tax or duty shall be laid on articles exported from any state.”
But proponents of an Internet sales tax maintain such a tax is needed in order to promote “fairness” between e-merchants and “brick-and-mortar” merchants.
“Unfortunately, Istook has fallen for the politician’s line on this,” said Chad Cowan of
Americans for Tax Reform.
Many government representatives, including Istook, believe the rampant growth of e-commerce will erode sales tax bases, which are used to fund programs such as education and transportation.
But organizations such as the National Governors Association have failed to address the burgeoning surpluses in government coffers around the country.
One such example is California, where the budget surplus is estimated to reach $13 billion this year. For the last several years, California politicians have argued over what to do with the state’s extra tax revenue, which has grown increasingly larger with each budget cycle.
Birthplace of the Internet explosion, California has the highest per capita usage of the Internet, according to ATR spokesman Ron Nehring. Yet tax revenues continue to increase, despite the popularity of e-commerce.
Istook’s office did not answer questions regarding the discrepancy in the congressman’s argument that increased e-commerce translates into decreased tax revenue.
“The pro-free market, conservative thing to do is extend this moratorium,” Nehring said. “Politicians love to raise taxes on people who can’t vote them out of office,” he added.
Swafford noted Istook is considering an amendment that would reduce the moratorium extension to two years instead of five.
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