The Senate last night approved a two-year extension on the Internet Tax Freedom Act but said Congress should revisit the Internet and mail order sales tax issue when the extension is over. Already approved by the House, the bill now heads to President Bush for enactment.
For once, the Direct Marketing Association, representing direct marketers, and the National Retail Federation, representing bricks-and-mortar retailers, were both happy with the outcome; the DMA because the moratorium was extended at all and the NRF because it was extended for only two years.
Although the legislation does not directly address the sales tax issue, many interpret the moratorium as applying to sales tax. The primary goal of the moratorium is to prevent states and localities from levying Internet-specific taxes. The Senate specifically rejected an amendment by Sen. Mike Enzi, R-WY, that could have led to the collection of state taxes on Internet and catalog sales.
"The moratorium’s extension will allow businesses to develop and stretch their wings on the Internet," said H. Robert Wientzen, president & CEO, The DMA. "The moratorium’s extension will ensure that e-commerce can continue to grow. The DMA is pleased that the Senate understands the critical need for the moratorium and the growth in business that it can foster – especially in the current economic environment."
The National Retail Federation considers the vote a victory for retailers because the extension is three years shorter than Congress had originally considered.
The NRF supports taxing online transactions in order to level the playing field among all retailers. "Congress should continue looking at the sales tax issue and be prepared to address the inherent unfairness of this loophole when the two years are up," said Sarah Whitaker, senior director of government relations for the NRF. "This gives the states a clear deadline‹while Congress is at work, they need to show their commitment by beginning to simplify their sales tax structures and reducing the number of rates and definitions that retailers have to track." Currently, there are 7,500 different state tax jurisdictions.
The Internet tax moratorium passed in 1998 prohibited taxes on Internet access and banned any tax that singled out the Internet, such as for sales. State governments have argued that they are losing billions of dollars in uncollected taxes with the ban in place.