Senate Renews Ban on Internet Sales Tax

The Senate voted Thursday to renew a ban on Internet taxes, ensuring that the country’s 130 million Internet users will not face new taxes for another two years.

By a voice vote, the Senate renewed a ban on Internet taxes that expired last month when lawmakers could not agree whether to include a provision that would encourage states in their quest to tax online sales.

The Senate rejected the sales-tax provision and opted to extend the expired ban for two years, until Nov. 1, 2003.

The House of Representatives last month approved an identical bill, which drew support from President Bush. The bill is now expected to go straight to Bush for signature into law.

Congress passed the original ban in 1998 to prevent states and local governments from imposing new taxes that might discourage growth of the new medium, which now accounts for somewhat less than 1% of all retail sales.

But with more than half of all Americans now online, many state and local governments worry that their revenue will decrease as residents turn increasingly to the Internet to make purchases.

A 1992 Supreme Court decision prohibits states from collecting taxes on transactions unless the retailer has a physical presence in the state.

That adds up to $13.3 billion in lost revenue this year, according to one study.

Catalog companies and Internet retailers have long argued it would be nearly impossible to comply with the roughly 7,500 different taxing jurisdictions in the United States alone.

State governments have sought to simplify their sales-tax codes in the hopes that Congress will then allow them to collect taxes on online, catalog and other “remote” sales.