WASHINGTON -- The Senate may vote as early as Tuesday on a plan that would permit states to collect Internet sales taxes.
The bill, championed by Sen. Mike Enzi (R-Wyoming), abandons Capitol Hill's hands-off approach to online taxation: It would usher in a cavalcade of levies on mail order and Internet purchases.
Enzi admits his Internet Tax Moratorium and Equity Act, which state legislators hope will hand them an extra $50 billion or so in tax revenue by mid-decade, is controversial. The former footwear entrepreneur put it this way in a recent statement: "Leadership isn't always easy or popular, it's doing what needs to be done."
Congress had previously banned states from collecting Net taxes, but the temporary moratorium expired on Oct. 21.
The Senate, according to an Enzi aide, will choose from two approaches: A straightforward extension of the moratorium, or Enzi's bill. That vote will take place "very soon," the aide said, perhaps as soon as the Senate returns from a brief recess next Tuesday.
Before the moratorium expired last month, the House of Representatives approved a two-year extension on Oct. 16.
But in the Senate, Sen. Byron Dorgan (D-North Dakota) blocked a vote on the House bill and the ban expired. (The Center for Individual Freedom, a group opposed to Net taxes, ran an advertisement [PDF] in the Washington Times that blamed Dorgan for the lapse.)
If the Senate adopted Enzi's bill, it seems unlikely that the House would go along with it.
"The Senate should immediately take up and pass the two-year extension passed by the House," House Majority Leader Dick Armey (R-Texas) said. "If the Senate continues to refuse to take up and pass the House bill as is, the conclusion is obvious."
"I strongly support a permanent ban on discriminatory Internet taxes," said Armey. "But the House bill already marks a significant compromise. We will not consider anything less than the clean, two-year extension we passed."
The political wrangling does not represent a partisan divide: It pits pro-tax legislators against colleagues who are more suspicious of additional taxes collected from Americans.
Currently, Americans are supposed to pay taxes voluntarily on items they order from websites and mail order firms that are out of state. But since so few people actually ante up, state officials have griped for years about what they view as billions of dollars a year in lost revenue.
The solution, according to state representatives such as the National Governors Association, is to create a uniform tax-collection mechanism -- and pressure mail-order and Internet-order firms to collect taxes and contribute them to the fund.
This week, six senators -- led by John McCain (R-Arizona) and Ron Wyden (D-Oregon) -- called on their colleagues to reject Enzi's approach and extend the moratorium instead. That drew a response from the National Governors Association, the National Association of Counties, and the Council of State Governments on behalf of Enzi's bill.
The NGA said that "increasing sales over the Internet threaten to significantly compound this revenue loss for states and localities," and cites a University of Tennessee study that projected state revenue losses from Internet sales would reach $45 billion by 2006 and nearly $55 billion by 2011.
Enzi's bill would create "a centralized, one-stop, multi-state reporting, submission and payment system for sellers" that states could -- but would not be forced to -- join.
Bartlett Cleland, legal counsel for the Information Technology Association of America calls Enzi's approach "horrible because it hasn't been subject to scrutiny -- not committees, not subcommittees, not anything. It has enormous implications on states but certainly on my industry as well."
Two states have already made preliminary moves to tax the Internet, but because their legislatures are not in session, they have been unable to enact law, Cleland warned. "They have set up language which predisposes their ability. South Carolina and Nevada have passed legislation that has primed the pump," he said.
Enzi's bill would, however, prohibit states from levying special taxes on dialup Internet connections.
Ben Polen contributed to this report.
