Originally created 05/11/00

House passes measure to extend Internet tax

WASHINGTON -- Even though the current Internet tax moratorium does not expire until October 2001, the House today voted to extend the ban for five years but put aside for now the thornier issue of how state sales taxes should apply to electronic commerce.

"We have the momentum for this. We don't want to get caught up in the more controversial sales tax issue," said Rep. Bob Goodlatte, R-Va.

The Republican-led House voted 352-75 to pass legislation that would extend until the fall of 2006 the moratorium on new taxes and those that single out the Internet. It would also repeal a provision that allows some states and cities to keep taxes they had in place in 1998.

An amendment that would have extended the ban for two years and kept that provision, backed by the Clinton administration, was defeated by 219-208.

The White House today issued a statement opposing the five-year version because it could delay congressional consideration of the sales tax issue and create "uncertainty in a vital and rapidly growing industry."

The bill, which now goes to the Senate, is part of an effort this month by the House GOP leadership to underscore their support for the Internet and the high-tech industry in this election year. The Commerce Committee was moving legislation permanently banning fees on Internet use and next week a bill repealing the 102-year-old 3 percent telephone excise tax is likely to move through the Ways and Means Committee.

In addition, Republican leaders today announced details of their "E-Contract 2000" that highlights the tax measures and several other bills sought by the high-tech sector Congress will consider this year, including an increase in visas for highly skilled foreign workers and permanent normal trade relations with China.

"We are talking about maintaining freedom and growth of this driving engine of the world economy," said House Majority Leader Dick Armey, R-Texas. "We believe that we are hitting the injustices in the tax code that the American people see as either obstructive to progress or just plain unfair."

Many Democrats, however, see the list of GOP initiatives as geared mainly to gain political favor with Internet and computer companies -- with their deep pockets of campaign contributions -- as the two sides struggle for control of the House.

"The leadership sees this as another opportunity to play to the high-tech crowd," said Rep. William Delahunt, D-Mass.

Arrayed against the extending the moratorium are state and local officials, including 39 governors worried about future revenue losses, and bricks-and-mortar retailers afraid the Internet will get an unfair advantage. Although the moratorium doesn't directly affect sales taxes -- under a Supreme Court ruling, states can't collect them unless an Internet or catalog business has a physical presence in that state -- opponents say it could effectively put the issue off for too long.

"In five years, it may be too late to do anything," said Rep. Ernest Istook, R-Okla., in a letter to colleagues. "Destroying the tax base that finances education won't boost a high-tech future, but it will destroy the chances for that future."

But Democrats and Republicans alike say either the extension is likely to easily pass the House, to head for an uncertain future in the Senate. Armey said that would give states and traditional retailers a chance to gather better information about the impact of Internet sales and how to streamline tax rates in thousands of different states, counties and cities.

"What we are essentially saying, rather than legislate what is your worst fears, let's legislate our highest hope for growth and development," Armey said.

Meanwhile, Reps. Jerry Weller, R-Ill., and John Lewis, D-Ga., introduced a bill Tuesday that would eliminate any income tax consequences for workers who take advantage of their employers' gift of free computers or cut-rate Internet access. Ford Motor Co., Delta Air Lines, American Airlines and Intel Corp. have all begun such programs, but most tax experts say workers will likely owe taxes unless the law is changed.

The tax moratorium extension bill is H.R. 3709.

The tax-free computer bill is H.R. 4274.

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