Net Gain -- Or Loss?

Entrepreneur advocacy groups are lining up in support of the Internet Tax Freedom Act, which is already halfway out of the congressional station on its way to 1600 Pennsylvania Ave. The bill would prohibit state and local governments from imposing new taxes on monthly access charges from ISPs.

Sen. Ron Wyden (D-OR) and Rep. Christopher Cox (R-CA), the sponsors of nearly identical bills (S.442 and H.R. 1054, respectively), fear local governments will kill the wave of emerging Web-based businesses by taxing them and their ISPs to death. Although some groups oppose the Internet Tax Freedom Act, their opposition has lost some of its edge, especially since the Clinton Administration has voiced its strong support of the act, which could go before Congress within the next few weeks.

In a letter to the House and Senate commerce committee chairmen, R. Bruce Josten, senior vice president of the U.S. Chamber of Commerce, said: "Today's patchwork of state and local taxes on the Internet interferes with the free flow of electronic commerce and, if current trends continue, will reduce the potential of the Internet as a new frontier for commerce."

The bill would also prohibit state and local governments from levying sales taxes on purchases by local residents via out-of-state Web sites. The bill mimics the status quo of direct-mail companies, which only have to collect sales taxes in states where they have a physical presence. Both bills extend their no-new-Net-tax moratorium for a fixed period: the Senate bill until January 1, 2004, and the House bill for six to eight years after passage.

"Is it fair to expect a two-person company doing business out of someone's home to collect sales taxes for states and cities across the country, or pay business license fees from coast to coast?" asks Sen. Wyden. As Web businesses continue to proliferate, we hope these and other applicable questions are addressed very soon.

Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.