Internet Tax Debate Escalates

The clock is ticking for the Internet access tax moratorium, which expires on Oct. 21. And although most lawmakers agree that the moratorium should be extended for as long as five years, some feel that any legislation should also include regulations regarding Internet and mail order sales taxes, or a simplification of the sales tax system.

In a June 26 hearing before the House Judiciary Committee’s commercial law subcommittee, two Republican governors — John Engler of Michigan and James Gilmore of Virginia — butted heads over Engler’s suggestion that catalogers’ current exemption from collecting sales taxes be changed. Both support extending the moratorium prohibiting states from enforcing a tax on Internet access fees. But Engler, vice chairman of the National Governors Association, wants to see language in an extended moratorium that would allow states to tax online sales if enough states simplify their tax codes. (Online sales are now taxable under the same law that governs print catalog sales: the Supreme Court’s 1992 decision Quill v. North Dakota, which determined that marketers without a physical presence in a state cannot be forced to collect and remit sales taxes on purchases made by customers in that state.)

While the Direct Marketing Association and mailers alike would naturally like to see the Quill decision extended to the Web indefinitely, the DMA would concede to the collection of sales taxes from out-of-state marketers as long as businesses are able to collect and remit sales taxes from far fewer than the current 7,600 jurisdictions nationwide.“It’s most important that all the different sales taxes in the 50 states be simplified to one tax rate per state for all commerce,” says DMA vice president of government affairs Mark Micali.

(For background on the moratorium, see “As Web Tax Moratorium Runs Out, Confusion Grows,” in the April issue of Catalog Age or online at

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