No new Net taxes for five years

Senate negotiators have reached a deal that would extend a moratorium on new Internet taxes until 2006 but open the door to increased collection of existing sales taxes that now go largely unpaid on Internet and catalogue sales, USA Today reports.

The bipartisan compromise would not immediately change the status quo, under which most consumers making purchases over the Internet and through catalogues avoid paying sales taxes.

“No one is talking about imposing new taxes on anyone,” Sen. Byron Dorgan, D-N.D., told the newspaper.

But in a concession to state and local governments that rely on sales taxes for about one-third of their revenue, states would have five years to simplify their sales tax-collection systems. If Congress approves the plan, taxes on almost all Internet and catalogue purchases would then be collected, the newspaper reported.

The fight over taxing Internet sales pits the high-tech industry and anti-tax crusaders against state and local governments in need of revenue and “brick-and-mortar” retailers who want a level playing field.

Internet sales are handled the same way as catalogue and telephone sales. If the retailer has a store in the purchaser’s state, a sales tax is added to the bill. But the Supreme Court has ruled that companies cannot be required to collect taxes in states where they have no physical presence.

Companies that sell over the Internet say the problem is the vast variety of sales tax rates imposed by 7,600 state and local taxing jurisdictions.

“We’ve been working for well over two years to allow the Internet to grow without discounting states’ needs for resources,” Sen. John Kerry, D-Mass., said.

States would have five years to write a simplified tax-collection plan. They would have to create uniform definitions for goods and services. They also would have to agree on one national sales tax rate or one rate per state, and Congress would have to approve the plan. Businesses with $5 million or less in annual revenue would be exempt.

The Bush administration said Wednesday that it supports the bipartisan plan.