WATPA: FW: Internet Tax Moratorium

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From: Norman J. Jacknis (norm@jacknis.com)
Date: Tue Apr 17 2001 - 23:01:39 EDT

[The following comes from the 4/16/01 edition of the OMB
Watcher (http://www.ombwatch.org/ombwatcher/ombw20010416.html)]

Three years ago, Congress passed a moratorium on states imposing new
taxes on Internet sales or access, called the Internet Tax Freedom Act
(47 U.S.C. 151 note). But that moratorium is scheduled to expire on
October 1, 2001. Accordingly, Sen. John McCain (R-AZ), chair of the
Commerce Committee, has placed this issue on his priority list of
action items for when the Senate returns next week.

There are two leading bills that are likely to be considered:

the Internet Tax Moratorium and Equity Act (S. 512)
introduced by Sen. Byron Dorgan (R-ND), and

the Internet Tax Nondiscrimination Act (S. 288)
introduced by Sen. Ron Wyden (D-OR). The Dorgan bill is favored
by those wishing to develop a unified system for allowing taxation
of sales on the Internet, mostly the states and public interest

The Wyden bill is favored by those wishing to limit Internet
sales tax and banning taxes on Internet access, mostly the
technology and business community. Neither bill addresses
enforcement issues, which the Senate Committee may

Both bills extend the moratorium on imposing new taxes.
The Dorgan bill extends the moratorium until December 31,
2005. The Wyden bill extends the moratorium on imposing
new taxes on Internet sales until December 31, 2006. It
would also permanently ban any taxes on Internet access.

Both bills have a "sense of the Congress" provision
describing the elements of a sales and use tax system that
states could employee in the context of remote sales. But
the two are very different. The Dorgan bill would allow states
to enter into an Interstate Sales and Use Tax Compact
modeled on the elements in the bill. When 20 states have
joined in the compact, it would immediately allow those
states to tax Internet and catalog sales unless Congress
acts within 120 days to disapprove the compact.

The intent of the compact is to deal with Supreme Court
decisions on remote use taxes. A 1992 Supreme Court
decision (Quill Corp. vs. North Dakota), combined with a
1967 decision (National Bellas Hess vs. Illinois), made clear
that states cannot require sellers without a "nexus" to the
state (e.g., out of state) to impose a tax. So consumers are
supposed to fill out information on their state tax forms
about goods they bought from other states and pay a sales
tax on those items. But state enforcement of these "use" or
"remote" taxes is nearly impossible.

The Wyden bill requires that there be a single uniform
statewide sales and use tax rate on all transactions that are
taxed. Unlike the Dorgan bill, Congress must pass a joint
resolution authorizing states to require sellers to collect a
sales or use tax.

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