Senate Moves to Extend Internet Tax Moratorium

Arguing that Congress will not have time this fall to debate the finer issues of the proposed extension of the moratorium on Internet taxes that is set to expire later this month, three U.S. senators have joined forces to present a quickie two-year moratorium extension that they hope will pass through the Senate uncontested.

Senate Judiciary Committee Chairman Patrick Leahy, D-VT, Senate Commerce Committee Ranking Republican John McCain, R-AZ, and Senator Ron Wyden, D-OR, have introduced a bill that provides for a two-year extension of the moratorium on taxation of Internet access fees and does not address the more controversial issue of sales tax on Internet sales, an issue many states had hoped would be resolved this year.

Currently 45 states and the District of Columbia levy sales taxes on purchases made in the state, but so far have been barred from collecting sales tax on Internet sales made by out-of-state sellers to customers living in their state. Nexus rules prevent collection of sales tax when a seller does not have a physical presence in the buyer's state.

As an alternative to sales tax, nearly all states levy use taxes on out-of-state purchases, however few states actually enforce this tax, relying on purchasers to track and acknowledge their out-of-state purchases and report and pay the tax on the honor system.

Many state governors have lobbied Congress to tie the controversial sales tax issue to the moratorium on tax on Internet access fees, expressing concern over the potential loss of state revenue from sales tax due to online purchases.

The House also appears likely to pass a moratorium extension that does not address the sales tax issue.

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