TELECOM TAX PROVISIONS EXPECTED TO FIND INTERNET TAX BILL HOME
Telecom companies may find stake in Internet tax debate, which will be renewed this week when 2 lawmakers known for supporting tax-free Internet will introduce new bill that promises comprehensive but controversial approach to many divisive questions. Sen. Wyden (D-Ore.) and Rep. Cox (R-Cal.), who last year pushed original Internet Tax Freedom Act (ITFA), are preparing bill that would extend moratorium on discriminatory Internet taxes for 5 years past current Oct. 31 deadline. It would create fast-track process for states to gain authority from Congress to tax online sales, but attach strict conditions on how states must simplify their taxing systems to do so.
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Wyden and Cox plan news conference this week, probably Thurs. Neither office would discuss specifics until then, but we obtained draft circulated on Hill and among lobbyists on Fri. Wyden floated “fast-track” idea last year, but never circulated legislative language. Several sources said key new provision is requirement that states simplify their nexus requirements for assessing “business activity” taxes, such as income taxes and franchise fees, as well as for sales taxes.
“This bill we'd actually come out and oppose” because of many mandates states would have to follow before gaining sales taxing authority, National Conference of State Legislature’s Neal Osten said. He said states also want to gain taxing authority automatically after fulfilling Congress’s requirements, rather than merely getting ability to petition on fast track. “The real thing [Cox and Wyden] are trying to do” is help national online companies such as AOL and Microsoft avoid corporate business taxes, Osten said. He said software companies had made it clear that their support of legislation authorizing sales tax collection was contingent on relief for business taxes.
Osten said he had no data on how much money was involved, but “I would imagine the loss we might have on corporate business taxes would be equal, or we might have a net loss.” Mark Nebergall, pres. of Software Finance & Tax Executives Council, disagreed, saying that currently companies such as Microsoft pay all their business taxes but pay them to number of states instead of to their home state only. That’s just going to get worse once online sales tax collection systems get going and “the revenue commissioners are going to have information down to the penny,” Nebergall said. He said upshot of nexus reform would be more money paid to companies’ home states, less to others and of course less time and money spent by the companies preparing tax returns. Nebergall praised Cox/Wyden bill for including “entire sales and use tax simplification menu -- it’s all there.” For example, states would be required to have uniform definitions for goods and services included in their tax bases, uniform tax returns and remittance forms and methods, uniform audit provisions and consumer privacy protections. Those issues haven’t been addressed by Streamlined Sales Tax Project of the states so far, Nebergall said.
Negotiations might become even more complicated if telecom industry inserts itself, as is widely expected. “If any [sales tax] fix starts to move, they will seek to have Congress add a mandate that state and local governments reform telecom taxes,” Osten said. “They have a legitimate argument” that state and local taxes are too complicated, he said, but if states are going to have their tax structures mandated by Congress, then any fix “may not be worth it.” Telecom industry “is going to claim this is a biased industrial policy,” Cato Institute’s Adam Thierer said. “What’s the difference between Internet access and plain old telephone access? Is someone going to be policing the bits?”
So far, telecom industry’s influence has been only slightly felt, in preamble finding that states should be encouraged to simplify “transaction taxes on telecommunications,” officials said.