TEI comments on permanent extension of Internet Tax Freedom Act moratorium: September 30, 2003.

On September 30, 2003, Tax Executives Institute sent the following letter in support of permanent extension of the Internet Tax Freedom Act moratorium against taxes on Internet access and multiple and discriminatory Internet taxes, as embodied in S. 150, The Internet Tax Non-discrimination Act. The letter was prepared under the aegis of the Institute's E-commerce Coordinating Committee and State and Local Tax Committee, whose chairs are Bruce J. Reid of Microsoft Corporation and Barbara Barton of Electronic Data Systems Corp, respectively.

On behalf of Tax Executives Institute, I am writing to support enactment of S. 150, The Internet Tax Non-discrimination Act of 2003 (similar legislation, H.R. 49, has already passed in the House of Representatives). As the preeminent organization of business tax professionals, TEI and its members--along with federal, state, and local governments--have much at stake in crafting an equitable tax system that is as administrable and efficient as possible. Making permanent the moratorium on taxing Internet access, as well as multiple and discriminatory taxes on electronic commerce, is an important step forward.

Tax Executives Institute

Tax Executives Institute was established in 1944 to serve the professional needs of business tax professionals. Today, the Institute has 53 chapters in the United States, Canada, and Europe. Our more than 5,400 members are accountants, attorneys, and other business professionals who work for 2,800 of the leading companies in North America and Europe, and deal with the day-to-day implications of the tax laws in effect throughout the country and the world. As a professional organization, the Institute is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the costs and burdens of administration and compliance to the benefit of taxpayers and government alike.

The Internet Tax Non-Discrimination Act

The Internet Tax Freedom Act, enacted in 1998, prohibited state and local governments from imposing new taxes on Internet access services and from imposing any multiple or discriminatory taxes on electronic commerce. In addition to establishing a moratorium on increasing the cost to access the Internet or enacting "pile on" taxes solely because transactions are conducted online, the legislation was intended to afford interested government and private sector parties time to resolve the important policy and administrative issues associated with the possible taxation of electronic commerce, including the simplification of state sales tax regimes. It was extended in November 2001 for these same reasons. These reasons have continuing import today.

Indeed, the continuing vitality of electronic commerce and its importance to the U.S. economy demonstrate the continuing reasons for enacting the moratorium in the first place:

* The Internet has become an indispensable tool of information, education, and opportunity. Allowing access to be taxed is counter to the notion that the Internet should be as accessible as possible to as many as possible. Additionally, conducting business using the Internet is quintessentially interstate commerce, and Congress has an obligation to keep it unfettered.

* The moratorium spawned cooperative efforts among state and local governments to simplify tax administration in respect of interstate commerce; making the moratorium permanent will provide a measure of certainty as the debate continues over issues of sales tax simplification and business activity tax nexus.

* The moratorium is essential to establishing a level playing field for business since it advances the principle that the taxability of transactions should not depend on the particular manner in which commerce is realized; moreover, clarity in respect of the scope of Internet access services protected from tax is also essential.

Thus, permanent extension of the moratorium will support two critical principles within the tax policy framework: Access to the Internet should not be taxed, and additional taxes should not be applied based on the method of doing business.

Conclusion

TEI urges favorable action of S. 150, the Internet Tax Non-discrimination Act of 2003, making permanent the moratorium on taxes on Internet access services and multiple or discriminatory taxes on electronic commerce.

We would be happy to present our views on these subjects or have the opportunity to discuss them further. Any questions about the Institute's views should be directed to Barbara Barton, Chair of the Institute's State and Local Tax Committee, at 972.605.1220, or Fred F. Murray, TEI's General Counsel and Director of Tax Affairs, at 202.638.5601.