LEGISLATION: No Internet taxes till ’06?

House approves ‘Net tax ban legislation; next stop is the Senate

The first hurdle in extending the Internet sales tax ban to October 2006 has been cleared. On May 10, the House of Representatives overwhelmingly approved legislation to extend the moratorium beyond October 2001, pushing through an extension bill (H.R. 3709) by a 352-75 vote. Next up is the Senate vote, followed by approval by the Clinton administration.

At press time, the Senate had yet to schedule any additional hearings on the matter. But some observers anticipate that the next steps in passing the moratorium may not come so easy. “It will be tougher in the Senate because the rules are different,” says Ross Starek, senior vice president, catalog industry, for the Direct Marketing Association. “The procedures give individual senators more power than individual members of the House have.”

Nevertheless, Starek believes the Senate will also approve an extension of the moratorium. In fact, he says, “Sen. John McCain [R-AZ] has already held a hearing on a similar version of the House extension.”

Ban proponents keeping quiet

Less optimistic is Grover Norquist, president of Americans for Tax Reform, and member of the Advisory Commission on Electronic Commerce (ACEC), the panel that in April agreed to recommend extending the tax ban.

“I would have said [in March and April] that a moratorium extension would have sailed through the House and the Senate, but it won’t be so easy today,” Norquist said in a speech at the May DMA Government Affairs conference. “Lawmakers are hearing from their state governors and retailers against the proposal, and they are not hearing from the direct marketing industry” in favor of it. While pro-Internet-tax voices have been clearly heard, Norquist noted that out that of the 4,000 letters he received during the months he spent as a member of the ACEC, few came from pure-play Internet retailers or direct marketers.

Members of the ACEC who oppose extending the Web sales tax ban, led by Gov. Michael Leavitt (R-UT), claim that state and municipal governments stand to lose $25 billion a year in tax revenue. For his part, Norquist likens this reaction to the efforts of the states in the 1980s and early ’90s to collect taxes on out-of-state mail order sales.

“By extending the moratorium, we can show” the local governments that in actuality they won’t lose such revenue, Norquist told attendees of the Government Affairs conference. “But they’re aligned with the bricks-and-mortar businesses, which are also panicked that no one will go to the shopping malls anymore – that everyone will buy on the ‘Net.” Should local governments lose sales tax revenue, they might have to compensate by raising property taxes – a move unpopular with residents and local politicians alike.

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