Internet transactions would be permanently protected from taxation under a bill Sen. Robert Smith (R-NH) introduced in the Senate last Thursday.
Smith’s bill (S-328) would replace the Internet Tax Freedom Act’s three-year moratorium on new Internet taxes with a permanent ban on those taxes retroactive to last Sept. 30.
The Direct Marketing Association had no immediate comment on the proposal, which was called “premature” by Walter Hellerstein, steering committee chairman of the National Tax Association’s Communications and Electronic Commerce Tax Project.
The moratorium was supposed to be “a time out” so the entire matter could be studied, Hellerstein said, adding “that’s how they [the moratorium bill’s supporters] sold the idea to state and local governments in the first place.” Hellerstein is a professor at the University of Georgia Law School.
Both the National Governors Association and the National Conference of State Legislatures, which reluctantly endorsed the Internet-tax moratorium, withheld comment on the new proposal while they review it.
The Internet Tax Freedom Act, which was made part of the $500 billion federal budget President Clinton signed into law last October, prohibits state and local governments from imposing any new taxes on Internet transactions between Oct. 1, 1998 and Sept. 30, 2001 while a special government panel studies the matter. The 19-member panel of government, business and industry leaders, would not be affected by Smith’s measure.
In introducing the legislation, Smith said e-commerce “is at risk from state and local politicians seeking ever more tax revenues” and it should not be transformed “into a pot-of-gold for state and local tax collectors.”
Smith added that “imposing yet another ladder of taxes in cyberspace is simply unfair” because many consumers “already pay shipping and handling costs in addition to the purchase price of the goods they buy.”
More importantly, he said, “Internet transactions are really interstate commerce” and the U.S. Supreme Court in interpreting the Commerce Clause of the U.S. Constitution has held that “commerce which crosses state boundaries should be subject to state sales taxes only when both seller and buyer are in the same state or when the seller has a presence in the buyer’s state.”
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