Committee Votes to Extend Internet Tax Moratorium

FRAMINGHAM (05/05/2000) - The House Judiciary Committee voted 29-8 Thursday to ask the full House to approve a five-year extension of the current moratorium on Internet sales taxes.

If passed by the full House next week, the legislation would extend the ban that forbids state and local governments from taxing online commerce. The bill would also end an arrangement under the current law that allows states to impose Internet access charges, and it would eliminate a telephone access charge as well.

"In our e-contract with high tech America, we are committed to eliminating barriers to e-commerce," House Majority Leader Dick Armey (Republican-Texas), said. "This is just the first step. We will also ban access charges that are barriers to those who want to access the Internet and the telephone access charges left over from the Spanish-American War."

Armey's office said that in looking over telecommunications laws, congressional researchers discovered that people are still paying a telephone tax that was enacted more than 100 years ago to help pay for the Spanish-American War. The tax was supposed to be repealed at the end of the war, but never was.

One of Armey's aides said the congressman joked to colleagues it was OK to drop the tax because he "called the Spanish ambassador and they said they are not coming back."

However, not everyone was laughing about the decision to send the bill, sponsored by Rep. Chris Cox (Republican-California), to the full House.

Representatives Melvin Watt (Democrat-North Carolina) and Robert Scott (Democrat-Virginia) were among the eight committee members who opposed extending the moratorium. Their opposition stemmed from their belief that the states should have the right to determine their own taxation policies and because many brick-and-mortar retailers have to pay sales taxes on every transaction.

They feel that allowing e-commerce businesses to skip paying sales taxes, while other businesses have to pay such taxes, gives Internet companies an unfair advantage.

In addition to opposition by Watt and Scott, Massachusetts Democrat William Delahunt tried to amend the law to extend the ban for only another two years.

One of his objections was that he did not understand why Congress was rushing through the extension of the moratorium, which is set to expire in 18 months.

"While I share the puzzlement of many that this measure is being considered now ... I do not object, in principle, to the granting of a reasonable extension," Delahunt said. "But given the progress that has already been made, I see no reason why it should take an additional five years for the states to reach an appropriate solution."

The long-term goal is to come up with a method of taxation that will provide state and local governments with a share of the money they say they are losing because the Internet is virtually tax-free.

The bill is scheduled to go before the entire House sometime next week.

Progress on a similar bill has bogged down in the Senate after several senators said they wanted more time to study the issue.

So far, 36 state governors have called on Congress to dump the moratorium and allow them to tax Web transactions freely.

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