New bill would freeze Internet taxation.

Senator Ron Wyden (D-Ore.) and Congressman Christopher Cox (R-Cal.) introduced legislation that would impose an indefinite moratorium on state and local taxes on the Internet. The Internet Tax Freedom Act (HR 1054; S 442) also recommends that President Clinton bring together local governments, consumers, businesses and others to develop policy recommendations on taxing online commerce.

Business conducted over the Internet--including the sale of software, online newspapers and database services--generated $500 million in total receipts in 1995 and $1.1 billion in 1996. According to the Treasury Department, Internet commerce could grow to $70 billion by 2000. Wyden said that 20 states and the District of Columbia impose one or more taxes on electronic commerce. Many of the states include Internet access and services under existing tax regimes, such as telecommunications or sales and use taxes.

"The Net's decentralized, packet-switched architecture makes every transmission vulnerable to multiple taxation," said Cox. "Thirty thousand state and local tax authorities could potentially tax the Internet to death."

The four-part bill would

1. Prohibit state and local governments from imposing taxes on online services and access. It would grandfather existing taxes.

2. Direct the Clinton administration, in consultation with Congress, to study U.S. and international taxation of Internet commerce and make recommendations on how to apply principles of interstate taxation to online commerce.

3. Bar federal or state regulation of the prices subscribers pay for Internet services.

4. Direct the administration to seek an international agreement making the Internet a duty-free zone.

"Electronic commerce will grow only if the confusion and complexity of state and local taxation is curtailed," said Kenneth A. Wasch, president of the Software Publishers Association. In a letter of support, Wasch said many of its 1,200 member companies try to reduce distribution costs by delivering software products online. Wasch said these companies are uncertain of their obligations for state and local sales and use taxes and they fear the tax burden could "outweigh the savings experienced by using the Internet as a delivery channel."

In another vote of support, the Information Technology Association of America issued a report that said be cause states already tax online commerce, additional taxes could stifle the growth of the Internet: If the Internet is going to be a boon, "it also would be a boon to the states." However, the report added that "any new public policy should remove obstacles to achieving the maximum economic growth possible."