Congress Ban on Internet Access Tax to Expire

The moratorium on taxes that target the Internet is set to expire this weekend. The House last week voted to extend the moratorium for two years, but objections of several Senators to the fact that taxes on Internet sales were not addressed by the House bill interfered with passage. Both the House and Senate are now in recess until Tuesday.

The House chose to isolate the issue of the moratorium on tax on Internet access charges by passing a bill that dealt only with that aspect of Internet taxation. The moratorium that will expire this weekend prohibits tax on Internet access fees and also bans any tax that singles out the Internet.

States are still wrestling with the issue of how to address sales taxes on Internet sales. It is generally agreed that state governments are losing money due to the increase in spending on the Internet. States are not entitled to collect sales tax on sales from a vendor that has no physical presence in the state. Although use taxes exist in most states, this tax, which requires purchasers to report and pay tax on sales from out-of-state vendors, relies on an honor system of tax reporting by the consumers, and states have no method of tracking such sales. Most consumers don’t even know such taxes exist in their states.

With the expiration of the moratorium on Internet taxes this weekend, there is concern that some states may take this opportunity to attempt to assess sales taxes on Internet sales to their residents. "Starting Monday, there's an opportunity for considerable economic mischief," said Sen. Ron Wyden, an Oregon Democrat who has introduced a bill similar to the House measure.

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