The committee leadership began the day's markup assured that it had the requisite votes to pass H.R. 1552, legislation that would extend by another five years the current three-year ban on discriminatory Internet taxes, which is set to expire on Oct. 21. The bill also would permanently ban Internet access taxes.
But after a withering debate on just two amendments, nearly all of the panels Democrats and at least three GOP members approved an amendment offered by Rep. Spencer Bachus, R-Ala., to trim the extension by three years.
The Bachus amendment also changed the permanent moratorium on Internet access charges to a two-year ban. In addition, the substitute amendment eliminated a provision in the underlying bill that would have barred 11 states that already impose access taxes from levying the charges.
Bachus and other Democrats also introduced an amendment that would have bound the moratorium to a promise saying that the states could tax e-commerce sales, once a sufficient number of them have simplified their tax systems.
Such measures would allow Congress to legislate around a U.S. Supreme Court ruling forbidding state taxation of goods sold to consumers in states where the seller does not have a substantial physical presence.
However, committee Chairman James Sensenbrenner Jr., R-Wis., ruled all simplification amendments were not germane to the underlying bill, and thus excluded them from consideration.
Sensenbrenner added that states are pushing for the added taxation powers because they are unable to enforce "use tax" laws already on the books.
"We would not be debating this issue today if states were already collecting use taxes," he said. "Why should we bail state use taxes out by refusing to extend the moratorium?"
That ruling touched off a storm of protest from committee Democrats. Rep. Melvin Watt, D-N.C., argued that excluding the sales-tax simplification measures from a moratorium would effectively remove the incentive for states to hurry up and simplify the nations estimated 4,000 different tax jurisdictions.
"Every effort weve made to put that in front of this body and subcommittee has been beaten back by germaneness, and the only way were going to get all of this dealt with is to keep the pressure on everybody to deal with this," Watt said. "So dont come to me telling me that the problem is lack of simplification out of one side of your mouth, and then tell me out of the other side were not going to put anything in this bill that incentives coming up with a such a system."
Rep. Barney Frank, D-Mass., suggested truncating the number of the underlying bill to H.R. 22, to signify the "Catch 22," described by Watt.
"Do we favor cooperating with states in allowing them to collect taxes on Internet purchases, or do we want to keep allowing the fact that collecting those is a legal impossibility?" Frank asked. "This is not a moratorium: its a more-and-more-and-moratorium. The Internet people are very happy because nobodys collecting these taxes now and nobody can."
Todays debate encapsulates the contentious issues that have stymied progress on a compromise Net-tax ban extension for the past two years. Main Street retailers and states-rights groups assert that Internet sales are slowly eroding the sales-tax revenues that finance local police and fire departments, schools and public works projects, among other things.
Opponents of the simplification language say states have had many years to simplify their tax systems, but they havent. They also note that nothing in the measure prohibits states from enacting their own simplification measures.
The amendment first offered by Bachus would have extended the moratorium until next June, as would a stand-alone extension favored by Sen. Byron Dorgan, D-N.D. Dorgan and Sen. Ron Wyden, D-Ore., have been unable to negotiate a compromise between their bills, which take slightly different approaches to the sales-tax simplification incentive.
By the end of the four-hour markup, the committee approved the bill as amended by a 19-15 vote.
While GOP members on the committee grumbled about proposing amendments to re-establish the permanent ban on Internet access taxes, most said they would prefer to address that issue when the bill comes up for a vote on the House floor. That vote is most likely to be held sometime next week.
Brian Krebs, Newsbytes
