Representatives of states and cities, hoping to hold on to a potentially huge future revenue stream, showed up on Capitol Hill on Thursday to fight legislation that would impose an indefinite moratorium on taxing the Net.
The moratorium "would be a significant infringement on state and local sovereignty, put hundreds of state and local budgets in a deficit, create considerable budgetary problems for local governments, and lead to unfair competition in the marketplace," Brian O'Neill, vice president of the National League of Cities and member of the Philadelphia City Council, told a hearing of a House Judiciary subcommittee on Commercial and Administrative Law.
But Congress isn't likely to buy this "we need the money" argument - at least not for now. The pending bill, the Internet Tax Freedom Act, sponsored by Senator Ron Wyden (D-Oregon) and Representative Chris Cox (R-California), appears to enjoy broad bipartisan support. The House version has 60 co-sponsors, and key committee chairs back the Senate bill.
The bills would not turn the Net into a tax-free zone. Instead, they target Net-specific levies such as taxes on Internet service providers or "bit taxes" on data flowing through the networks. Sales, property, and other taxes would be unaffected. The Clinton administration endorsed the bills' approach in its recently released blueprint for worldwide electronic commerce.
"Under the bill, states are free to tax Internet transactions as long as the taxes on these sales are imposed in the same manner as befits interstate mail and telephone orders," said Representative Robert Matsui (D-California). "This measure is consistent with Supreme Court rulings on interstate commerce."
Officials outside Washington, assuming responsibility for programs the federal government is cutting and clinging to the Republicans' Contract With America promise to give more power to states, have grown more and more vocal about their displeasure with the moratorium idea. The US Conference of Mayors passed a resolution last month condemning the idea, and state officials are protesting what they call intrusion into their taxing power.
Real money is at stake. For example, Tennessee already brings in US$2 million a year from special Net taxes.
The bill enjoys general support from Net-related businesses and industries, which argue that allowing states and municipalities to continue imposing their own Net taxes is a dangerous approach to electronic commerce.
"Given the dispersed nature of Internet communications, buyers and sellers doing business online will face uncertainties regarding taxing jurisdictions," said Robert Holleyman, president of the Business Software Alliance.
