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Selling a new Net tax system

Wyoming Senator Mike Enzi writes that his Internet sales tax plan will give the states breathing room to come up with a single, blended tax rate for remote sales. Now he just has to convince the Senate.

Anyone with access to a computer and a modem has noticed the increase in the use of the Web to promote the purchase of books, CDs and other consumer goods.

An entire industry has emerged online, and consumers are using the Web to surf for the best deals on an endless number of items. The Internet has become an everyday part of our lives and, as an avid computer user, I think we should do everything we possibly can to help e-commerce continue to grow.

Unfortunately, with changes in consumer buying trends has come the danger of reduced sales-tax revenues to the states, cities and towns who have come to rely on them for the provision of needed services, including the money that is used to pay the salaries of our teachers, police and fire fighters. For them, the Internet is a sales-tax loophole that is threatening to reduce our local governments' ability to provide the services we have come to rely on.

If present trends continue, and sales on the Internet remain untaxed, revenues will continue to decline. Other forms of taxes, such as property or income taxes, may then have to be increased to offset these lost revenues. In addition, those states that do not have a state income tax may be forced to initiate one to address this growing problem.

In response, I introduced the Internet Tax Moratorium and Equity Act (S. 1567) on Oct. 18 and have been working to move the legislation through Congress. This new bill will make permanent the existing moratorium on Internet access taxes, and it will extend the moratorium on multiple and discriminatory taxes for an additional four years through Dec. 31, 2005. That extension would allow states and localities the time they need to develop a streamlined sales- and use-tax system, which would include a single, blended tax rate for each separate state and make it easier for remote sellers to implement and understand the new system. My bill would also encourage states to enter into an Interstate Sales and Use Tax Compact through which members would adopt this streamlined system.

There are some who do not fully understand my proposal, and misinformation about the bill has found its way into the media.

My bill would not tax the Internet. It would not impose a tax. The only direct statutory change would be the prohibition of taxes on access charges for the use of the Internet.

In addition, the bill would not create a new tax. Retailers throughout the nation collect sales taxes every day that are remitted to municipalities and states. It also would not require remote sales to be taxed. The bill would encourage, but not require, states to set up a simple, fair system in order to tax remote sales, but only if the state decides to participate in that system. It is not a mandate for increased taxes.

Another misconception about this legislation is that it would detract from e-commerce. It would actually promote the use of Internet commerce by placing a permanent ban on taxes for accessing the Internet. Start-ups will not be discouraged by the enactment of this bill. In any state, no business with gross sales of less than $5 million would have to comply with this law.

Three years ago, Congress passed a moratorium barring states from taxing Internet access to give it time to work out a solution that would be fair to state and local governments and businesses. Since the moratorium took effect, few hearings have been held and no bill has passed a Senate committee. Working with a diverse bipartisan group of senators, S. 1567 was introduced to give states some encouragement to level out their declining sales-tax revenue problem, which was created by the use of the Internet as a tax loophole.

This effort aims to provide federal, state and community leaders with the flexibility they need to generate the revenue that is necessary to continue to provide us with the services we depend on--like better schools and increased law-enforcement protection.