- The Washington Times - Wednesday, June 27, 2001

A moratorium on Internet sales taxes expires in October, and lawmakers concerned about reducing the Web's contribution to the economy want to extend the ban.

"Failure to renew the moratorium will tell the high-tech sector of our economy that it is open season for special Internet taxes," Rep. Christopher Cox, California Republican, told the House Judiciary Committee's subcommittee on commercial and administrative law yesterday.

States don't collect taxes on Internet sales. Congress passed the original moratorium in 1998, and an effort to extend it last year failed in the Senate.

While passage this year looks more likely, it is less certain whether lawmakers will decide how and when to let states collect taxes on electronic commerce.

Billions in revenue for state and local governments are at stake.

The Commerce Department said Internet sales reached $7 billion in the first quarter and could reach $35 billion this year.

The General Accounting Office, the congressional auditor, has estimated that uncollected sales taxes on Internet purchases could cost states $12.5 billion in 2003. An independent study by two University of Tennessee professors last year concluded that states will lose a combined $10.8 billion in 2003.

"What the Internet should not be is a way for the buyers and sellers of goods and services to avoid their obligation to pay sales or use taxes," Michigan Gov. John Engler said yesterday in testimony before the subcommittee.

Mr. Engler, a Republican, urged Congress yesterday to enact legislation giving states approval to tax online sales.

Virginia Gov. James S. Gilmore III, a Republican who headed the congressionally appointed commission last year that proposed extending the Internet tax ban for five years, said states should prove a tax is necessary before Congress lifts the moratorium.

The Senate Commerce, Science and Transportation Committee has been working on legislation to extend the moratorium. It also is considering letting states collect sales taxes when the extension expires.

Sen. Ron Wyden, Oregon Democrat, and Sen. Byron L. Dorgan, North Dakota Democrat, are discussing a proposal to expand states' sales-tax collection authority if at least 25 states simplify their own tax rates.

The plan wouldn't take effect until 2006, and Congress would have to approve any tax-simplification proposal the states come up with.

Led by groups including the National Governors Association and the National Conference of State Legislatures, officials of 32 states are discussing a sales-tax-collection system. Thirteen states have adopted model legislation to simplify collection of online sales taxes.

There are more than 7,600 tax jurisdictions now.

At least one retailer yesterday supported a plan that lets states tax online sales.

Amazon.com Vice President Robert Comfort testified that the online retailer will support a bill giving states the authority to collect sales taxes as long as a congressionally approved tax-collection plan is simple.

"Although a single, nationwide rate applicable to all remote sales would be the simplest approach, Amazon.com does not believe it would be necessary. One rate per state would work very well," Mr. Comfort said.

Mr. Wyden favors a plan to have one sales-tax rate per state.

The Direct Marketing Association (DMA) also supports a one-rate-per-state plan.

But yesterday the Washington-based group urged the Senate not to push a bill through this year that identifies a deadline by which time the states would begin collecting taxes.

"The moratorium is good public policy. Congress should not include any requirements for remote sellers to collect sales tax until it can agree on a framework for significant simplification of the nation's disparate sales tax systems," said Frank Julian, vice president of Ohio-based Federated Department Stores and the head of the DMA's tax committee.

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