[Congressional Record (Bound Edition), Volume 145 (1999), Part 10]
[Senate]
[Pages 13697-13698]
[From the U.S. Government Publishing Office, www.gpo.gov]



                             TAXING THE WEB

 Mr. MOYNIHAN. Mr. President, I would like to bring to the 
attention of the Senate, an OP-ED entitled ``Taxing Web Wallets'' that 
appears in today's New York Times. This article on the tax treatment of 
Internet Commerce is by my nephew, a former Treasury official, Michael 
Moynihan. Last October Congress passed the Internet Tax Freedom Act, 
which placed a three year moratorium on any new taxes on the Internet. 
But as Michael Moynihan points out, ``. . . we have yet to address the 
long-term tax consequences of the movement of trade on line.''
  I ask the article be printed in the Record.
  The article follows:

                [From the New York Times, June 21, 1999]

                           Taxing Web Wallets

                         (By Michael Moynihan)

       Washington--Last month, 14 million Americans bought 
     something on the Internet. Taking advantage of what might be 
     the last tax loophole, 99 percent of them did not pay sales 
     tax. Without knowing it, most broke the law. States cannot 
     force out-of-state sellers to collect sales taxes, but 45 
     require buyers to pay the tax anyway. Compliance is virtually 
     nil. Today, a Congressional commission on electronic commerce 
     takes up two key questions: How do we tax the Internet? 
     Should we?
       The Internet Tax Freedom Act, passed last fall, impose a 
     three-year moratorium on

[[Page 13698]]

     cyber-specific taxes. By banning the infamous ``bit tax,'' 
     which would tax every E-mail and downloaded image, the law 
     helped the Internet marketplace flourish. Freedom from a 
     thicket of 30,000 state and local taxing jurisdictions has 
     provided predictability to the Web economy.
       But we have yet to address the long-term tax consequences 
     of the movement of trade on line. Last year, Americans bought 
     $43 billion in goods and services over the Internet; next 
     year the figure is expected to reach $250 billion. That's a 
     lot of lost sales tax. Governments will have two choices: cut 
     services or find this money elsewhere. When the moratorium 
     expires in 2001, the Internet will become fair game. 
     Retailers who can't or won't sell on line, from barbers to 
     boutiques, will clamor for equal sales tax treatment.
       The erosion of sales tax revenue could mean the end of the 
     sales tax altogether. In Europe, where governments rely on 
     value-added taxes, fearful authorities are already diverting 
     inspectors from ports to the post office, where they open up 
     individual packages looking for wily Internet scofflaws. And 
     no one has come up with a way to monitor the purchase of 
     digital goods like software.
       Why can't we just extend the obligation to collect sales 
     tax to Internet merchants? Thirty thousand taxing 
     jurisdictions means millions of rules, not easily adapted to 
     E-commerce. The big states are quiet because they themselves 
     are high-tech leaders. Though the commission will make its 
     recommendations next May in an election year, it shouldn't 
     pull punches. If the panel doesn't develop fair tax rules for 
     the new economy, 30,000 local authorities and their overseas 
     counterparts will be waiting.

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