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Critical time for Net tax bill

Though the Senate scrambled to pass the bill, any changes by the House could cause the legislation to get killed.

The Senate successfully scrambled to pass the Internet Tax Freedom Act yesterday--but the bill faces one more hurdle before it is "signed, sealed, and delivered" to President Clinton.

The White House-backed proposal calls for a three-year time-out on new or discriminatory taxes on Net access, services, and products.

Despite the fact that both chambers passed a version of the legislation, the House now has to approve the final Senate version passed yesterday. If House members tinker with the legislation in any way, it will have to go back to the Senate once again for its approval.

This Ping-Pong match between the houses could cause the clock to run out on lawmakers, since Congress is expected to adjourn this weekend. This could result in the Net Tax Freedom Act being killed.

"We hope the House will pass the Senate version of the bill. If they do any changes it will open up the process again and the bill will likely die," said Pia Pialorsi, a spokeswoman for the Senate Commerce Committee, which worked furiously to get the bill passed.

The House will get the job done, according to Rep. Chris Cox (R-California), who cosponsored the legislation with Sen. Ron Wyden (D-Oregon).

"Senate approval means Internet tax freedom will be a reality this year," Cox said in a statement. "The White House, Governors Wilson, Pataki, Gilmore, Cellucci, Bush, and dozens of consumer and business groups have endorsed this bill because it is vital to the Internet's continued growth and technological development. I'll be working with the Senate tonight and tomorrow to get a final bill to the president for his signature by Monday."

Supporters of the moratorium say it will halt the nation's 30,000 tax jurisdictions from squelching the budding e-commerce industry's revenues. The more than year-long debate over the bill was hard fought with local leaders initially opposing it because they said it hindered their right to raise local revenues.

During the proposed nationwide tax ban, state, local, and federal leaders will scramble to set up uniform definitions for online goods and services to determine when and if they can be taxed.

The time-out doesn't apply to sales taxes on foods and services sold over the Net. Under most tax codes, if a retailer has a physical location in a state or city, it has to collect and remit sales taxes to the appropriate authorities; this is called having "nexus."

The House and Senate bills specifically differ in the following areas:

  • The Senate bill establishes a 19-member commission to recommend online tax policy and report to Congress in 18 months. The body also will study the effect of e-commerce on brick-and-mortar retail businesses and local governments' ability to collect the appropriate taxes on Net sales.

  • Drawn up as a concession for local leaders, the "grandfather" clause protects taxes enacted and imposed by states before March 1, 1998, in the House bill and October 1, 1998, in the Senate bill.

  • The Senate bill states that commercial Web sites that give minors access to "harmful" material are not protected from new taxes, under an amendment introduced by Sen. Dan Coats (R-Indiana).

  • In addition, the Senate bill includes online privacy protections for children under age 12 and requirements that government documents be posted on the Net and that federal agencies accept digital signatures.

    The child privacy and Coats amendments are not expected to be a deal breakers, however. The House also passed similar statutes within other legislation.