Bill Prevents Internet Taxes

The bill that imposes an eagerly awaited three-year ban on new Internet-access taxes, the Internet Tax Freedom Act, went into effect beginning October 1, 1998.

Buried almost halfway through the roughly 4,000 page, 1999 Appropriation Bill signed into law by President Clinton late last year, the Internet tax ban has four major components:

• A moratorium on federal Internet or Internet-access taxes.
• A declaration that the Internet should be free of international tariffs, trade barriers and other restrictions.
• A three-year ban on new taxes imposed on Internet access and on multiple or discriminatory taxes on electronic commerce.
• The creation of the Advisory Commission on Electronic Commerce to conduct a study of international, federal, state and local taxation strategies for the Internet. Members on the commission will represent federal, state and local jurisdictions, as well as include representatives from electronic commerce.

Supporters of the bill argued that the Internet is an important avenue of commerce that needs protection from the limiting effects of taxation by local jurisdictions on sales over the Internet.

“I think it’s absolutely vital that we not allow this incredible baby to be choked in its cradle,” said Senator John McCain (R-Arizona), a sponsor of the moratorium proposal that passed in the Senate by a 96-to-2 vote.

The Internet is quite a baby: A recent study estimated that retail sales on the Internet totaled $4.8 billion in 1998. The same study predicted that sales would reach $25 billion in 2002.

Critics of the ban, which had bipartisan and presidential support, argued that it would result in lost revenues to local governments and create an inequity between local retailers and Internet merchants.