Only days before its October 21, 2001 expiration date, the House of Representatives voted to extend, until November 1, 2003, a moratorium preventing taxes on Internet access and multiple and discriminatory Internet taxes. However, Congress declined to pass the extension, causing some concern that state and local governments could start wreaking havoc on the Internet economy.
The moratorium, imposed in 1998, prohibits taxes on Internet access and bans any tax that singles out the Internet. That the moratorium deadline has lapsed without an extension may discourage end-users from buying products over the Internet, some industry experts said.
"It would slow down the Internet economy," says Bruce Hahn, director of U.S. public policy at CompTIA, an industry consortium. "It doesn't make sense, given the declining economy, to push it into further decline."
Already, some states have suggested crafty ways of double-dipping into end-users' pockets. "Some states have tried to tax end-users' ISPs, which is really a duplicate tax, because they're already paying tax on their telephone when they dial up. We would oppose that," Hahn says.
Additionally, there is an underlying fear that state and local governments could start charging discriminatory Internet taxes on top of existing sales taxes, Hahn says. "If a state decides to charge a certain percentage tax for retail and an additional percentage tax for the Internet, that would be discriminatory," he says.
Congress can still approve the bill set forth by the House, but Hahn believes that is not likely to happen before January. "It's up to Congress now," Hahn says. "I don't know that Congress will take it up. Everything is up in the air right now."