National Association of Counties * Washington, D.C.            Vol. 32, No. 10 * May 29, 2000

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Internet tax bill stalled in Senate

Dorgan, Voinovich introduce sales tax measure;
states required to adopt a set of uniform standards

By Ralph Tabor
associate legislative director

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Senate Majority Leader Trent Lott (R-Miss.) indicated earlier this month that he has no plans to bring a House-passed Internet tax moratorium extension bill to the floor in the immediate future.

Although Senate leaders could try to bring the bill (H.R. 3709) to the Senate floor at any point, Lott said he would view such a step as a last resort. “We’re not going to call it from the desk unless that is the only way to go, Lott stated. “I would like the Commerce Committee to be able to act first.”

Action by that panel remains up in the air, however, Senate Commerce Committee Chairman John McCain (R-Ariz.) said he still is not certain there is enough support on his committee to approve his moratorium legislation (S. 2255). His bill and the House-passed bill call for a five-year extension of the moratorium.

McCain had been working with Sen. Ron Wyden (D-Ore.) to gain committee support for a two-year compromise moratorium extension along with an amendment authorizing the eventual collection of sales and use taxes by remote sellers.

There appears to be little support for the McCain-Wyden approach. Most of the Senate Commerce Committee would prefer no action this year and several senators cited the fact that the current moratorium does not expire until October 21, 2001, sixteen months from now.

McCain now seems cool to his earlier proposal. When asked in a recent interview about an extension of the moratorium, he said, “It could wait.”

He also expressed concern about the greatly increased amount of campaign contributions from high tech companies and the bipartisan eagerness to pass Internet legislation. “I have concerns that they are rushing some legislation through just so we can gain the allegiance of Silicon Valley,” McCain said in a USA Today interview.

Sands shift in Silicon Valley
The sands may be shifting a bit, though, in Silicon Valley. At a meeting earlier this month on Capitol Hill two prominent technology leaders broke ranks with their colleagues and cast doubt on the equity of the Internet’s remaining sales tax free.

Intel Corporation Chairman Andy Grove said that blocking states from collecting taxes would amount to giving electronic merchants an unfair subsidy.

“As a matter of public policy, I don’t see the justification for it,” he told members of a congressional panel, convened to examine Internet policy issues.

Hewlett-Packard Company CEO Carly Fiorfina echoed Grove’s remarks. “It is not realistic of our industry to stand and say ‘This taxation should never be applied to e-commerce.’ ” However, Fiorfina did acknowledge that the existing sales tax system is too complicated to work well on the Internet.

She urged state and federal lawmakers to work together to streamline sales tax collection, making taxes uniform enough to fit “the borderless nature of the online economy.”

Dorgan-Voinovich bill
Sens. Byron Dorgan (D-N.D.) and George Voinovitch (R-Ohio) were joined last week by nine other senators in introducing a bill (S. 755) which would authorize states to require remote sellers to collect sales and use taxes. The bill also extends the moratorium on new Internet access charges to Dec. 31, 2005.

The legislation calls on states and localities to develop a streamlined sales and use tax system. States would be authorized to enter into an Interstate Sales and Use Tax Compact if they adopt the streamlined system. As soon as 20 states have become signatories to the compact, the states would submit it to Congress for review. The compact goes into effect in 120 days if Congress takes no action to disapprove it.

A controversial provision of the bill requires states to have a single statewide use tax rate on remote sales. A state could continue to have varying state and local rates on “brick and mortar” sales. A state could use a weighted-average of actual state and local taxes imposed to determine the single rate for remote sales.

The legislation has been referred to the Senate Commerce and Finance committees. It is not expected to be considered this year by either committee unless there is a renewed effort to pass legislation extending the current Internet tax moratorium.

Similar legislation providing for an Interstate Compact on Sales and Use Taxes has been introduced in the House by Reps. Spencer Bachus (R-Ala.), Karen McCarthy (D-Mo.), Ernest Istook (R-Okla.), and William Delahunt (D-Mass.)

The legislation (H.R. 4462) differs from S. 755 in that it authorizes states to have a weighted average rate but does not mandate a single, statewide rate. H.R. 4462 also does not provide for Congressional review and disapproval of the interstate compact after 20 states have adopted the streamlined sales and use tax system.

Key Provisions of State Tax Simplification Bill The legislation introduced by Sens. Byron Dorgan (D-N.D.) and George Voinovich (R-Ohio) lists the following simplifications to be included in the streamlined sales and use tax system: • centralized, one-stop, multi-state registration system for sellers; • uniform definitions for goods and services; • uniform and simple rules for attributing transactions to particular taxing jurisdictions; • uniform rules for designating and identifying purchasers exempt from sales and use taxes; • uniform procedures for certifying software used by sellers to determine tax rates and taxability; • uniform bad debt rules; • uniform tax returns and remittance forms; • consistent electronic filing and remittance methods • state administration of all state and local sales and use taxes; • uniform audit procedures; • reasonable compensation to sellers for tax collection; • exemption from collection requirements for sellers with less than $5 million annual sales; and • appropriate protections for consumer privacy.