Internet Tax Debate Heats Up

Washington—The debate over whether sales made over the Internet should be taxed or not heated up on June 26 in a hearing before the House Judiciary Committee’s commercial law subcommittee. At issue was what to do once the Internet tax moratorium expires this October.

Among those who addressed the subcommittee, two Republican governors—James Gilmore of Virginia and John Engler of Michigan–disagreed over the matter. Although neither governor opposes an extension of the tax ban, according to news reports, they clashed over the 1992 Supreme Court ruling that exempts out-of-state catalogers from collecting sales taxes.

Engler, who is vice chairman of the National Governors Association, cautioned that as Internet retailing grows, “the imbalance and unfairness to Main Street retailers will continue to grow.” Gilmore, who chaired a congressional advisory committee on Internet taxes last year, said that such an imbalance isn’t unusual.

Engler said he supports language in a renewal of the Internet tax moratorium that would allow states to tax Internet sales if enough states simplify their tax codes. He added that a majority of states would agree to adopt a streamlined, simplified tax system that would cut online sellers’ cost burden involved in tax collection while bringing taxes collected by Internet-based sales in line with brick-and-mortar sales.

On June 27, House Energy and Commerce Committee chairman Billy Tauzin (R-LA) said his committee would take up a bill in July that would prohibit states and municipalities from taxing digital items downloaded over the Internet, even if Congress allows states to tax other online sales. “We’re probably going to consider legislation,” he said, “regarding how we might move from the position where we are now into one that defines classes of activities on the Internet that would not be subject to taxation, and those that would be subject to equal treatment by the states.”

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