E-tax Moratorium May Get Extension

WASHINGTON, D.C.-In a move that spells good news for E-tailers, Sen. John McCain, R-Ariz., introduced a bill March 21 to extend the moratorium on Internet sales taxes for five years through 2006.
But the bill comes as a congressional commission finds it difficult to reach consensus on the issue of establishing a system of parity for taxation among Internet and traditional retailers.
Congress passed a temporary moratorium on the Internet sales tax in 1998 that is due to expire in October 2001. In his announcement, McCain says an extension is needed because, in his judgment, the commission charged by Congress to develop recommendations for an Internet tax plan may not be able to offer a complete and formal recommendation to Congress by its deadline in April (BillboardBulletin, March 22).
In its last series of meetings held March 20-21 in Dallas, the 19-member Advisory Commission on Electronic Commerce also said the moratorium should be extended for five years but failed to reach a two-thirds majority vote on six key points viewed as a first step toward achieving tax parity.
Parity would provide a sales-tax exemption for all retailers that sell product available in both digitized and non-digitized form, such as prerecorded music and books.
Eleven of the commission's members-who represent businesses, anti-tax concerns, and state and local governments-endorsed the six points as a first step toward tax parity that they hope lawmakers will accept. However, the endorsees do not make up the two-thirds majority vote that is needed for the commission to make a formal recommendation to Congress.
The recommendations were put forward March 20 by officials from the commission's six-member business caucus: America Online, Time Warner, Charles Schwab, Gateway, AT&T, and MCI Worldcom.
The commission also did not achieve a two-thirds majority vote on the business caucus' Feb. 9 recommendation to exempt products such as books and music from sales taxes (Billboard, Feb. 19).
The commission's simple majority recommends a permanent ban on any tax on access to the Internet.
The group also calls for a clarification of a law that requires that a business have some "physical presence in a state" before sales taxes may be collected on sales over the Internet or telephone or from catalog businesses. At this point, Web pages and Internet service providers aren't considered physical presences for tax purposes.
Revenue-hungry state and local government officials, including governors Gary Locke, D-Wash., and Mike Leavitt, R-Utah, abstained on the vote after realizing there would be no clear statement of agreement coming from the full commission on equality of taxation and how state sales taxes should apply to online purchases.