States, counties, cities, businesses and congressional groups fighting over what should be taxed on the Internet compromised Thursday to support a plan crafted mostly by Utah Gov. Mike Leavitt.
It would place a three-year moratorium on taxing any Internet services. Meanwhile, a new federal commission would be formed to study how to more easily collect sales tax on items sold there.Leavitt noted that most items sold on the Internet now escape sales tax because no one is charged by law to collect them. That may hurt traditional stores (where tax collected brings higher prices), and governments that lose those uncollected taxes.
Rep. Chris Cox, D-Calif., had pushed a bill, however, to put a six-year moratorium on all Internet taxes, as he said, to ensure "the Internet is not a place where tax vultures descend and collect taxes in ways that do not now exist."
Cox and Leavitt said in a press conference Thursday that they realized they have common goals - not to allow new taxes on access to the Internet, but to allow currently existing sales taxes to be collected on items sold there.
But Leavitt said states must find a way to simplify their collection of sales taxes - because more than 6,000 sales tax rates now exist in the 50 states because of varying levies in different counties, cities and special taxing districts.
"No one vendor should have to deal with 6,000 different taxing entities," Leavitt said.
So the new federal commission proposed in compromise legislation would help set one rate per state for Internet sales taxes, come up with a way to allow "seamless" collection electronically for all such taxes and distribute them to governments.
Leavitt said he is confident such details could be worked out in two years. Any such plan then developed by that commission would, under terms of the bill, receive priority consideration by Congress before the three-year Internet tax moratorium ends.
That was enough to bring support from groups that had pushed several differing proposals, including: the National Association of Counties, the National League of Cities, the National Governors Association, the U.S. Conference of Mayors, the Council of State Governments and the National Conference of State Legislatures.
Cox and Leavitt said that with such support, they expect passage of the compromise bill this year - although they said they also expect some small changes to it as it works through Congress.
"The marketplace of the future requires a 21st Century system of commerce that is more uniform, consistent and streamlined," Leavitt said.
"There is a point in the life of a problem when it is big enough to see, yet small enough to solve. I'm pleased governors, state and local leaders, business and our partners in Congress have agreed to work together to find solutions."
Cox noted that Leavitt has been leading negotiations among all parties for the past three months on the issue.