Senate Bill Could Give U.S. Governments More Power to Tax Internet, Phone Sales

A Senate bill is being negotiated that would grant state and local governments more power to tax E-commerce if at least 25 states simplify their sa... StaffJune 18, 2001

According to the Wall Street Journal, Congress would consider granting state and local governments more power to tax E-commerce if at least 25 states simplify their sales-tax codes, under a bill being negotiated by Senate Democrats and Republicans.

The proposal, an attempt to break the deadlock over how to tax the swelling trade in retail sales by phone and the Internet, is being drafted by Arizona Republican John McCain, Democrats Ron Wyden of Oregon and John Kerry of Massachusetts and others active on E-commerce issues. No deal has been agreed to yet, says the Journal, but supporters are hopeful for agreement so the package can be formally introduced, perhaps this week.

In a concession to state and local governments, the senators late last week dropped a requirement that states adopt a single statewide sales-tax rate, reports the Journal. The single rate had been demanded by the high-tech industry, which complains that the roughly 7,500 current local tax jurisdictions make collecting sales taxes an unreasonable burden. Its absence could provoke the industry’s opposition if a deal is struck.

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According to the newspaper, a 1992 Supreme Court ruled that states can’t require retailers to collect sales taxes unless they have a physical presence in that state. Since the decision, state and local governments have lobbied Congress to restore their lost taxing authority, and their efforts became urgent with the rise of E-commerce in the 1990s.

According to congressional aides and lobbyists, the tax package calls for the states to consider adopting a plan developed by the National Governors Association and the National Council of State Legislatures known as the Streamlined Sales Tax Project. The plan doesn’t set specific tax levels for types of goods, but seeks to simplify the thousands of sales and uses taxes through standardized definitions of goods, says the Journal.

Once 25 states vote on and approve the simplification program, Congress would vote on a bill to grant the states new taxing authority, and the measure wouldn’t be subject to amendment. Three states already have adopted simplified systems, while more than a dozen have them under consideration, says the Journal.

Another contentious issue left unresolved by the senators concerns business-activity taxes, which some states have sought to impose on out- of-state firms. High-tech companies and others want a provision spelling out limits on imposing such a tax, but currently the plan says nothing on the issue, according to the paper.

To counterbalance the effect of any new E-commerce taxes, some high- tech outfits would like to see the current ban on Internet-access taxes, which is set to expire in October, continue for several more years, says the Journal.

A spokesman for Sen. Byron Dorgan (D., N.D.) said talks would continue this week. Once it is agreed to, the proposal is expected to receive a quick hearing from the Senate Commerce Committee. Beyond the commerce panel, however, the package must be considered by the Senate Finance Committee and by the relevant House panels. Serious efforts to kill or substantially change the plan in those bodies are expected, says the Journal.

The White House has followed the effort to write a workable plan and has strongly encouraged it, Mark Weinberger, the Treasury Department’s tax-policy chief, told the Journal. The Bush administration hasn’t taken positions on specific elements, though, he said.