The Senate Commerce, Science, and Transportation Committee today passed a bill to impose a moratorium on new Internet taxes after adopting a package of amendments to try and answer objections that the legislation is a potentially disastrous intrusion on state sovereignty.
The bill, approved 14-5, would impose a moratorium on state and local taxes of Internet access and online services through 1 January 2004. It also makes clear what taxes are exempt from the moratorium, including sales and use taxes, property and business-license taxes, and growth or net income taxes.
The principal argument for the bill - sponsored in the Senate by Democrat Ron Wyden of Oregon with wide support from Internet business interests - was voiced by committee chairman John McCain (R-Arizona).
"I recognize we have some significant hurdles ahead of us. But the future of America rests on this technology. I would hate for us to choke this baby in the cradle," McCain said. "This is a global economy we live in today. If we don't do it, then our competitors will."
National mayors and governors organizations have banded together against the bill, saying that it interferes with their sovereign right to pass levies on local commercial activity. And as electronic commerce grows more important, they say, the preferential tax treatment could create an unfair competitive advantage for online businesses.
"This bill is a tremendous threat to Main Street merchants," Senator Slade Gorton (R-Washington) said, adding that he feels it would be "a terrible error" to treat Internet sales the way the United States currently treats mail-order sales, which also are exempt from many taxes.
The states that tax some Net services now, according to a recent New York state study, are Connecticut, Massachusetts, Tennessee, Pennsylvania, Texas, Ohio, and Wisconsin.
Today's vote clears the Wyden bill to go to the Senate floor. The House version, sponsored by Representative Christopher Cox (R-California), is also awaiting a floor vote. Neither house is likely to act before Congress' year-end recess.
