WASHINGTON -- Nearly everyone on Capitol Hill claims to agree that intrusive and expensive taxes on Internet purchases are far from desirable.
But legislators can't seem to figure out what to do next, and the current federal moratorium on Net taxes expires in October.
Gov. John Engler (R-Michigan) told Congress on Tuesday that state governments wanted a "level playing field" between Main Street retailers who pay sales taxes and online retailers who do not.
"The Internet should not be a way for buyers and sellers of goods to avoid existing obligations," Engler told the House Judiciary subcommittee on commercial and administrative law.
Engler downplayed the likelihood of states rushing to try to tax online purchases, but Rep. Chris Cox (R-California) said that it was necessary for Congress to "act quickly," and offered a list of states that were about to levy fees before the moratorium took effect in 1998.
"I hope we can all agree as a starting point that the Internet should never be subject to new, multiple or discriminatory taxes," Cox said.
He stressed that the moratorium still allows some kinds of taxes on Net purchases -- as long as, say, catalog sales are taxed at the same rate -- and said that "extending the moratorium is especially important at a time when so many high-tech and e-commerce companies are struggling to raise capital and make ends meet."
Last year, the House of Representatives voted 352-75 to approve an extension of the moratorium, but the Senate never acted. Senate negotiators currently are drafting legislation that would extend the restrictions on states until 2006, but would ease the collection of existing taxes that go unpaid on Internet and catalog sales.
In the 45 states that have a sales tax, purchases made by the Internet, mail order or telephone are subject to taxation -- but few people voluntarily write checks to their state revenue offices. Groups like the National Association of Counties, the U.S. Conference of Mayors and the National Governors Association, say this revenue shortfall is unfair to traditional meatspace retailers.
The House Judiciary subcommittee is considering two bills, H.R. 1552, which would extend the Internet Tax Freedom Act by five years, and H.R. 1675, which would make the moratorium permanent.
Robert Comfort, vice president for taxes at Amazon.com, said that states should be free to decide whether they'll make "changes to their sales tax systems," but said he doubted whether state legislatures were truly committed to simplifying their tax codes.
Comfort did say that Amazon would support a bill giving states the authority to collect sales taxes, as long as their tax codes were simplified. Over 7,600 different jurisdictions with the ability to levy taxes exist, which is why Comfort said a simplified rate of one tax per state would work very well.
Gov. James Gilmore (R-Virginia) said he favored a permanent moratorium because he believed Internet transactions should remain tax-free: "Government has no right to expand tax burdens on Americans just because a similar commercial transaction is taxed. Government should only take what it needs to operate government and stop there."
Andrew Osterman contributed to this report.
