Wilson Signs California Internet Tax Freedom Act

(August 25, 1998)  California Governor Pete Wilson signed into law the California Internet Tax Freedom Act yesterday.  Similar federal legislation is likely to be passed next month.

The bill, 1614, sponsored by State Assemblyman Ted Lempert (D-Palo Alto), will bar California governmental entities from imposing any new discriminatory taxes on Internet commerce for three years.

This bill prohibits the imposition, assessment, or attempt to collect taxes on Internet access, online computer services, or the use of Internet access or any online computer services.  It prohibits any bit or bandwidth tax.  It also probibits any discriminatory tax on online computer services or Internet access.

However, the bill permits nondiscriminatory taxes on Internet transactions.  The prohibitions do

"not apply to any new or existing tax of general application, including but not limited to any sales and use tax, business license tax, or utility user tax that is imposed or assessed in a uniform and nondiscriminatory manner without regard to whether the activities or transactions taxed are conducted through the use of the Internet, Internet access, or Online Computer Services."

This also does not apply to taxes on telephone and telecommunications services in most circumstances.

The bill also contained a finding that "As a massive global network spanning not only state but international borders, the Internet is inherently a matter of interstate and foreign commerce within the jurisdiction of the United States Congress under Section 8 of Article I of the United States Constitution."

The U.S. Congress is also close to passing a similar federal Internet Tax Freedom Act.   On June 23 the House of Representatives passed HR 4105, which has a three year ban on new discriminatory taxes.  The Senate has not yet passed a bill.  However, the Senate Commerce Committee, which has concurrent jurisdiction over this bill with the Senate Finance Committee, passed a version of the bill with a six year ban on new taxes.  On July 28, the Finance Committee passed a version of the bill which shortened the ban to two years.

The federal bills differ not only over the length of the tax moratorium, but also over whether and how to grandfather existing discriminatory Internet taxes, and over the makeup of the commission that will study and make recommendations on future Internet taxation.

The prime backer of the bill in the Senate is Ron Wyden (D-OR).  Rep. Chris Cox (R-CA) and Rep. Rick White (R-WA) are the lead proponents of the bill in the House.  President Clinton has announced his support for the legislation.