New bill kicks off battle over Internet tax moratorium extension

Computerworld - WASHINGTON -- A new push to extend a moratorium on the addition of taxes aimed at e-commerce began in the U.S. Congress last week. But since the three-year moratorium took effect in late 1998, state governments and many large companies have been organizing to challenge the notion that the Internet should be a tax-free zone.

The two lawmakers who championed the initial moratorium, Sen. Ron Wyden (D-Ore.) and Rep. Christopher Cox (R-Calif.), last Thursday introduced legislation that would extend the ban on "new and discriminatory" Internet taxes -- meaning ones that single out e-commerce transactions -- for another five years beyond its scheduled expiration in October.

The Cox-Wyden legislation wouldn't specifically prevent states from attempting to collect sales taxes from pure-play online retailers that are located elsewhere. But critics said they want Congress to acknowledge as part of any new moratorium bill that states should have the ability to compel those companies to gather and pass along sales taxes.

Under two earlier rulings by the U.S. Supreme Court, a state is barred from forcing an online retailer to collect sales taxes unless the company has a physical presence in that particular state. Congress could change that restriction, which is a big bone of contention among large brick-and-mortar retailers that have to collect taxes on in-store sales and on many online transactions because of their far-flung operations in numerous states.

As filed by Wyden and Cox, the new legislation "falls far short of what we are looking for," said James Goldberg, Washington counsel at the North American Retail Dealers Association (NARDA), a Lombard, Ill.-based trade group that claims the current sales tax system is unfair to companies with widespread brick-and-mortar locations.

What NARDA wants, Goldberg said, is a "comprehensive solution" to the Internet tax issue that will "level the playing field" for all businesses. A similar position is espoused by the E-Fairness Coalition, a Washington-based lobbying organization that includes NARDA, other retail trade associations and individual companies such as Wal-Mart Stores Inc., Kmart Corp. and Circuit City Stores Inc.

But others argued that the brick-and-mortar retailers are the ones that are seeking an edge in the tax debate.

Bentonville, Ark.-based Wal-Mart and its allies "would prefer to load up the [pure-play online retailers] with as much administrative burden as they can, so they can gain a competitive advantage," said Mark Nebergall, president of the Software Finance and Tax Executives Council, a Washington-based association of software vendors and IT consulting firms that supports the moratorium on new Internet taxes.

A key argument