Bill would prohibit Net taxes

Presidential candidate Sen. John McCain doesn't want the Net bled to death by tax collectors--not now and not ever.

While a congressional commission studies Net taxation, McCain (R-Arizona), who is chairman of the Senate Commerce Committee, has introduced legislation to make a moratorium on "discriminatory" Net taxes permanent.

The taxation debate is critical to the Net industry, especially the e-commerce sector, which is expected to rake in $1.3 trillion by 2003, according to Forrester Research. McCain said his bill would prohibit sales and use taxes on e-commerce transactions.

"Simply, this bill would make permanent the moratorium on sales and use taxes for e-commerce, and would encourage the administration to urge our world trading partners to do the same," McCain said on the Senate floor while introducing the bill.

Specifically, the bill amends the Internet Tax Freedom Act. That bill set up a national three-year "time out" that prohibits the nation's 30,000 tax jurisdictions from passing unfair sanctions on Net access, services, and sales, and "grandfathered" tax codes in effect before October 1, 1998.

"The discussion includes not just Internet sales or even catalog sales, but all of the ramifications of taxing sales of goods across state and international boundaries," McCain said on the Senate floor.

Several cooks in the kitchen
The 19-member Advisory Commission on Electronic Commerce is charged by Congress with examining the effects that taxes have on the e-commerce sector, as well as brick-and-mortar retail businesses and local governments' ability to collect taxes on Net sales. The panel is expected to issue its final report to Congress by next April.

A consensus among the panel is not expected to come easily because it represents a wide range of stakeholders from AT&T, America Online, the state of California, an anti-taxation consumer group, and local and state lawmakers.

Some state and local officials want to maintain their ability to tax Net services, and won't take kindly to McCain's bill.

The National Governor's Association, for example, wants to see a sort of Net "flat tax" system put in place for e-commerce sales.

"The Governors have called for the development of a twenty-first century sales tax that can achieve this fairness for all forms of sales: Main Street, mail order, and Internet. A streamlined sales tax with simplified compliance requirements will ensure that states are prepared to support the global electronic marketplace of the next century," the NGA said in a policy statement.

But McCain, for one, is not going to wait for the congressional panel to hammer out all of these issues.

"I think it is important to move forward on ensuring that the default position, absent a consensus proposal, is not to lift the moratorium, but to place the burden of proof on those advocating taxation of e-commerce," he stated.