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Internet Tax Bill Would Exclude Music

Florida Republican Cliff Stearns has introduced legislation Thursday that would exempt digital music, software, and other intangible goods sold over the Internet from sales taxes.

The bill, which was co-sponsored by four other legislators, would allow states to impose sales taxes based on the delivery address, electronically delivered music, videos, and other intangibles could be sent tax-free to the buyer’s computer or other Internet device, not to a fixed mailing address.

The bill seeks compromise between states that argue they’ve lost revenue to Internet transactions that are now exempt from state taxes and online retailers who say the obligation to comply with thousands of differing tax codes would cripple the burgeoning e-commerce industry. A 1992 Supreme Court decision prevents states from collecting taxes from out-of-state retailers unless they also have a brick and mortar presence in that state.

Stearns, the chairman of a powerful consumer protection subcommittee to the Energy and Commerce committee, said, “This bill captures a very small sliver of e-commerce; the number and value of these online transactions are extremely small. It is not in the public interest to have thousands of disparate and inconsistent regulations-including taxation-apply to transactions…in carried out entirely online.”

A coalition of states is in the process of simplifying their tax codes with the hopes that Congress will allow them to collect remote sales taxes.

A ban on Internet-specific taxes is set to expire in October, but Congress is considering allowing an extension. Meanwhile, several states are working with terrestrial retailers to streamline the thousands of tax laws that have so complicated the issue of Internet taxation. Stearns’ bill does not address either the streamlining effort or the moratorium that expires this fall.

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