Internet Firms Seek End To Taxes
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) -- Watching Internet commerce expand by an
estimated 700 percent over the past five years, it's easy to see
why some of America's 30,000 taxing jurisdictions might salivate
over a potential new revenue gold mine.
Although only a handful of states and cities so far have sought
to impose taxes on cyberspace activities. Internet companies such
as America Online, Yahoo! Inc. and Microsoft Corp. want Congress to
call a temporary halt before things get out of hand.
"We're not looking to make this an exempt service," said Ellen
Fishbein, assistant general counsel at America Online. "We just
need guidance on how to apply the laws. We need a time-out from
this confusion."
A dozen states already have imposed some form of access tax on
Internet services, such as a fee for the telephone connection or
one added to the subscription charge. Sixteen states tax the
transfer of data downloaded by users.
This has created some apparent unfairness, such as a newspaper
customer in some places who pays no tax if the paper is physically
tossed onto the doorstep but must pay when downloading the
electronic version.
"Some of these taxes are downright contradictory," said Peter
Arnold, spokesman for the industry's Internet Tax Fairness
Coalition.
After overcoming initial resistance from many state and local
officials, the House in June passed legislation sponsored by Rep.
Christopher Cox, R-Calif., imposing a three-year moratorium on any
new state, local or federal taxes on Internet access or data
transfers. Sales taxes on Internet purchases would not be affected,
but they apply only to transactions within the same state,
computerized, mail order or whatever.
"What I don't want to see is new taxes invented that, by
definition, are multiple and discriminatory," Cox said. "If
you're already taxing income, assets and property, coming up with
an Internet tax is truly piling on."
The House measure would create a commission made up of
government and private officials to decide whether and how states,
counties and cities should be permitted to tax online commerce. The
panel would recommend within two years whether Congress should
enact new laws regulating what state and local governments can do.
The action this fall will be in the Senate. A bill by Sen. John
McCain, R-Ariz., chairman of the Commerce Committee, would have
imposed a six-year tax moratorium, but the Finance Committee
changed that to two years. The House bill and both Senate versions,
setting bans of two, three and six years, may be debated on the
Senate floor.
"I am confident we can work out something that most people will
accept," McCain said. "We are agreeing in principle that we have
a moratorium so we don't slow down growth in the Internet."
The Clinton administration and the National Governors
Association have endorsed the Cox bill, which would not disturb
existing taxes if they were in place March 1. The governors had
opposed the original Cox measure, which had no time limit on the
moratorium. They felt it thus made extremely unlikely that new
state or local taxes ever would be permitted.
"While the Internet is a wonderful, invigorating new medium, it
should not be singled out for a tax break at the expense of
shopping malls, Main Street and other taxpayers," Republican Gov.
Terry Branstad of Iowa and Democratic Gov. Bob Miller of Nevada
said in a joint letter.
The governors said Connecticut, Florida, Georgia, Massachusetts
and Washington have passed laws removing taxes from the Internet.
More recently, Gov. Pete Wilson signed into law a three-year tax
moratorium in California.
Shortly after the House passed Cox's rewritten measure, the
governors and six organizations representing mayors, city officials
and counties endorsed it.
Assuming some version of the bill is enacted, America Online's
Fishbein said an Internet tax commission would have a daunting task
ahead of it. The nontangible, fleeting nature of cyberspace brings
a host of new problems to solve.
"Where is our customer located? We don't ask for addresses. The
customer can take their laptop and move it anywhere. Under current
law, a vendor is only obligated to collect taxes in states where we
have a physical presence," she said. "There are differing
opinions as to what that means."
The House bill is H.R. 4105. The Senate bill is S. 442.
(08 Sep 1998 01:20 EDT)
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