The WSJ reports,"This week, a House committee is expected to vote to renew a longstanding federal moratorium on Internet-access taxes. The 15-year-old moratorium on Internet access taxes prevents most states and local governments from applying telecommunications excise taxes and other levies on Internet connections, of which there are about 262 million in the U.S.
But the move to extend the moratorium on access taxes creates an opening for senators who see it as a vehicle for their legislation to allow states to collect online sales tax from out-of-state Internet merchants. Right now, that’s difficult for states, because the Supreme Court said in 1992 that a state can’t force an out-of-state merchant to collect its sales tax unless the merchant has a physical presence in the state. With Internet sales growing rapidly, governors and state lawmakers of both parties are pushing Congress to pass legislation that would set up a legal means for states to begin collecting their sales tax from more out-of-state vendors.
So, when the moratorium bill comes over from the House to the Senate, it’s likely that key senators will seek to add their online sales-tax legislation.
Then the question becomes what the House will do, as the clock ticks down to a fall deadline.
The eventual outcome is far from clear. But one thing is certain: unless Congress makes up its mind by Nov. 1, the current Internet tax moratorium will expire. That means many states and local governments would be able to start imposing telecommunications taxes on the online world.
Already, big telecommunications companies are preparing notices to send out to customers in coming weeks, saying the possibility exists that they will have to start collecting state and local taxes on Internet access soon. That’s gotten the attention of lawmakers who worry about angering constituents ahead of the November election.
Congress could eventually blink, and re-enact the moratorium without the online sales-tax legislation.
But sponsors of the sales-tax bill aren’t likely to give up without a fight. They see this as a big pressure point for passing some version of their bill.
Even a few online retailers are looking for a national solution to the sales-tax mess, to prevent a patchwork of state rules.
But many lawmakers – especially House Republicans – view the legislation as a burden on businesses and also a politically unpopular new tax on consumers".
