California Extends Its Internet Tax Moratorium

Sacramento, CA–California Gov. Gray Davis earlier this week signed a bill into law extending his state’s moratorium on new Internet taxes by more than two years.

Meanwhile, a key congressional committee is about to consider legislation extending the federal ban on online taxes by more than four years.

Gov. Davis signed the California Internet Tax Freedom Act (SB-394) into law in Sacramento Tuesday without comment.

The measure prohibits the state from imposing, assessing, and attempting to collect taxes on Internet access, or online service providers and users. In addition, it prohibits taxation of sales made over the Internet by merchants without a physical presence in the state, such as a retail outlet, catalog store, or warehouse.

While Gray was signing that measure into law, Rep. John Sensenbrenner (R-WI), chairman of the U.S. House of Representatives Judiciary Committee said in Washington with out specificity that within the next 10 days the full committee will vote on a bill extending the government’s soon-to-expire tax moratorium to Dec. 31, 2006.

With the federal moratorium on new Internet taxes set to expire on Oct. 21, the full Judiciary Committee is expected to overwhelmingly recommend swift House approval of the Internet Tax Freedom Act (HR-1522) sponsored by Rep. Christopher Cox (R-CA). Cox’s bill won the overwhelming approval of the Judiciary Committee’s subcommittee on commercial and administrative law and the House Commerce Committee earlier in the year.

House approval of the measure would send it to the Senate, which is currently considering four similar bills proposing to extend the moratorium on Internet taxes.

Those bills are S-245 and S-589 both sponsored by Sen. Robert smith (R-NH); S-664, sponsored by Senators Judd Gregg (R-NH) and Herb Kohl (D-WI), and S-777, sponsored by Sen. George Allen (R-VA).

Also pending in the Senate is the Internet Tax Moratorium and Equity Act (S-512), sponsored by Sen. Byron Dorgan (D-ND), which would give states the authority to tax remote sales, whether by mail, telephone, over the Internet, or any other direct response vehicle.

And on Wednesday, the Michigan House of Representatives narrowly approved a bill authorizing the state’s participation in the Streamlined Sales Tax Project, a joint effort by the National Governors Association, the National Conference of State Legislatures and the Multistate Tax Commission, to tax remote sales, whether made by mail, over the telephone, the Internet or other direct response methods, at one uniform rate nationally.

The measure now goes to the Michigan State Senate for passage. Gov. John Engler, who has lobbied heavily for the bill, said he would sign it as soon as it reaches his desk.

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