Internet Tax Moratorium Extended

One week before the post-Thanksgiving holiday shopping frenzy begins, the Senate passed a two-year extension of the 1998 moratorium on discriminatory and access taxes on the Internet. The House of Representatives approved the measure last month before the moratorium expired Oct. 21, and it now goes to President Bush for signature.

The move is heralded as a victory for online retailers and consumers, particularly as the holiday shopping season approaches. However, state and local governments, as well as many brick-and-mortar retailers, had hoped to gain new sales tax collection authority in conjunction with the moratorium extension.

The legislation was hung up in the Senate by efforts to incorporate provisions on states rights to collect Internet sales taxes. Today, a state is not authorized to collect taxes on Internet sales when the merchant does not have a physical presence in the state. Several initiatives were crafted during the past year to give the states sales tax collection authority if they simplify and unify their tax structures overall – something most states have lobbied aggressively for.

Upon approving the bill, several senators said they hoped progress would be made on the tax simplification effort before the moratorium comes up for another vote in 2003.