- The Washington Times - Friday, March 31, 2000

Sen. Judd Gregg said he will introduce a bill as early as Friday to ensure that states can't force Internet companies to tax sales if they don't have a presence in that state.

It would be the first and most controversial bill arising from the report of the congressionally appointed Advisory Commission on Electronic Commerce.

Other lawmakers also are expected to introduce bills inspired by elements of the Internet tax commission's report.

The commission finished its work Thursday, voting 10-8 to send a report to Congress that will reflect the panel's majority positions extending the current moratorium on new taxes through 2006, permanently banning Internet-access taxes, banning taxes on the sale of digital goods and services, and eliminating a 3 percent federal telephone tax.

Those won't go to Congress as formal recommendations because only 11 members supported the proposals, rather than the 13 needed for a supermajority under the panel's mandate.

"Already these ideas are resonating in Congress," Virginia Gov. James S. Gilmore III, chairman of the Internet tax group, said during a teleconference of the commissioners Thursday.

Mr. Gregg, New Hampshire Republican, said he will introduce a bill that embraces nexus provisions proposed by a faction of business leaders on the Internet tax commission. "Nexus" is the litmus test to determine whether a company has a physical presence in a state and whether a company selling goods on line should have to collect sales taxes the sticking point of the debate at the Dallas meeting last week.

The business faction based its proposal on a 1992 U.S. Supreme Court decision that says only retailers that have a presence in a state are required to collect taxes for that state.

Mr. Gregg's bill would put the principles of the 1992 decision into law.

Anti-tax and pro-tax contingents couldn't agree what determines when a company has presence, or nexus, in a state, although the business lobby's nexus provision was supported by a majority of the 19-member group.

The measure would prevent states from collecting sales taxes from an out-of-state company even if it has an affiliate or other company handling returns or warranties of products bought over the Internet.

"Unless you have a physical presence in a state, you shouldn't be forced to collect sales taxes," Mr. Gregg said Thursday.

Pro-tax members of the tax commission, led by Utah Gov. Michael O. Leavitt, lobbied for rules to make it easier to tax on-line sales. Mr. Leavitt, a Republican, said the nexus rules proposed by the business lobby were drafted to benefit companies, and states would experience a cumulative tax loss of up to $20 billion if the rules are approved.

Mr. Gregg said his bill won't have the impact on states they claim.

"I think those states have a hard case to make. What they're looking for is tax revenue," Mr. Gregg said. "They're basically saying they want to raise taxes and kill the goose that's laying the golden egg."

The commission will send its report to Congress by its April 21 deadline.

Mr. Gilmore tentatively is scheduled to testify on the commission's findings April 12 before the Senate Finance and House Commerce committees.

Mr. Gilmore said House Speaker J. Dennis Hastert, Illinois Republican, and Majority Leader Dick Armey, Texas Republican, are working on a bill to extend the current moratorium on new Internet taxes.

"We will absolutely look at what they send up to us, because we want to do something before Congress is out," Armey spokesman Richard Diamond said.

It's uncertain whether legislation that springs from any part of the Internet tax commission's report will make it through Congress this session.

"I think at the very least, we will extend the moratorium this year," said Rep. Robert W. Goodlatte, Virginia Republican and Judiciary Committee member.

The moratorium on new Internet taxes expires Oct. 21, 2001.

The Cox-Wyden bill sponsored by Rep. Christopher Cox, California Republican, and Sen. Ron Wyden, Oregon Democrat that would extend the moratorium is before the House Judiciary Committee, but no hearings have been scheduled.

"I think we wanted to wait and see what the commission decided," Mr. Goodlatte said.

Another element in the tax commission proposal that could lead to legislation is the 3 percent telephone tax.

House Minority Leader Richard A. Gephardt said Tuesday he supports eliminating the 3 percent telecommunications tax, indicating there is bipartisan support.

"That tax was put into place 102 years ago to help finance the Spanish-American War. Today, it doesn't finance any war, but it could be an impediment in our battle to provide universal access to the Internet, especially for low-income families who have a tough enough time paying their bills," the Missouri Democrat said.

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