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California law bans Net taxes

Gov. Pete Wilson signs the act, which bars local governments in California from levying new or discriminatory taxes on Net firms.

SANTA CLARA, California--On the day after his 65th birthday, California Gov. Pete Wilson gave Internet businesses a present, signing the California Internet Tax Freedom Act that bars local governments from levying new or discriminatory taxes on Internet companies and transactions.

The three-year moratorium, which passed the California Legislature by wide margins despite initial local opposition, takes effect January 1. However, the legislation is written so that it effectively bars new Net taxes before that date.

The state law mirrors the Internet Tax Freedom Act now before Congress, where the House and Senate must reconcile their versions of the legislation. The principal issue is how long the moratorium would last. President Clinton has championed a campaign against taxes on Net business.

Wilson agreed. "What California needs is not more taxes and regulation. Although it will need some, we need to be careful not to stunt the growth of this new industry," the Republican governor said at a bill-signing event at Cisco Systems, the Internet's biggest online seller.

While the law applies only to California, it should have impact throughout the industry because so many Internet businesses are based in the state.

"California needs to set the stage for the national debate on electronic commerce," he said. On a national level, Wilson called for passage of the Internet Tax Freedom Act, also known as the Cox-Wyden bill.

"When it comes to the Internet, the best thing government can do is keep its hands off," said Assemblyman Ted Lempert, a Silicon Valley Democrat and cosponsor of the legislation.

In such taxation, he said, "the cost of administration could be more than the taxes collected," said Assemblyman Jim Cuneen, the bill's GOP cosponsor.

The California law bars taxes on any Internet activity, including ISP accounts and online purchases. California firms that manufacture or ship their products in another state will not be required to collect California sales tax.

The bill also forbids so-called bit taxes, which include "any transactional tax imposed on or measured by the amount of digital information transmitted electronically."

But the act does not preclude collecting new or existing "nondiscriminatory" taxes, so the state and localities still can collect sales and use, business license, or utility user taxes.

Turning to another issue with a high profile in Silicon Valley, Wilson used today's bill-signing occasion to slam President Clinton's threat to veto legislation that would allow high-tech companies to obtain work visas for foreign nationals to help with what the industry calls a shortage of talent in technical fields.

Wilson sent a letter to the White House today, urging it to "come to its senses" and sign the law to expand the so-called H1-B program.