US rejects e-tax plan

The Senate worries that e-taxes will prove bureaucratic

The US Senate has given final congressional approval to a bill that extends for two years a ban on internet-related taxes.

The bill, which renews a now-expired three-year tax prohibition, will now be approved by President George W Bush.

In a boost to the struggling online sector, senators rejected an amendment that could have led to future collection of state-level taxes on internet sales and internet access.

The amendment followed an agreement among 20 states to collect online taxes on each others' behalf, but was defeated by a narrow majority on a procedural motion.

Opponents of the amendment argued that more study was needed before a system was put in place that could allow one state to impose a direct tax on residents of another, something that runs counter to the principles of US tax law.

The fight goes on

The state-tax issue is far from dead, however.

The Senate did agree to keep discussing the issue with states, and the amendment's supporters vowed to fight on.

Senator Byron Dorgan, a co-sponsor of the rejected amendment, said, "State and local governments are concerned about funding for schools and fairness for Main Street retailers."

Uncollected state sales taxes on e-commerce were estimated at nearly $26bn last year.

The amendment issue is backed by many high street retailers, which feel the online tax exemption gives their internet rivals an unfair advantage.

Bureaucratic nightmare

The exemption from state and federal taxation has been one of the main factors behind the rapid growth of e-commerce in recent years.

The moratorium has also protected internet users from paying taxes on their access accounts.

But most congressional opponents of online taxation are not motivated by the need to support the sector.

Instead, they fear that drawing up tax rules for e-commerce transactions will be a bureaucratic nightmare.

Senator Ron Wyden, who argued in favour of the tax prohibition, said Americans do not want to be taxed when they log on for their news, weather and sports.

He said any attempt to tax internet commerce would "chew up a vast amount of time for compliance."