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U.S. Congress expected to reboot Internet tax issues in 2015

By Kevin Drawbaugh

WASHINGTON, Dec 9 (Reuters) - The U.S. Congress is expected this week to put off until 2015 any decisive action on a tangle of Internet tax issues, including online access taxes and online state sales taxes.

Though technically separate, the two have become entwined by political maneuvering, with a holding action in the works on Capitol Hill, according to analysts and lobbyists.

"What we're looking at is kicking the can down the road and putting this issue into 2015," said Clay Brockman, an analyst at Height Securities.

A $1.1-trillion stopgap spending bill still being negotiated in Congress is expected to include an extension to late 2015 of a temporary ban on new taxation by states of Internet access, leaving two broader questions for later consideration.

One of these is a long-standing push by bricks-and-mortar retailers for federal legislation to empower the 45 states that charge sales taxes to require etailers such as Amazon.com to collect the tax on online purchases.

At present, only some states require this and only for some etailers, including Amazon in many cases. The inconsistency of the system gives many online merchants that do not collect sales tax a pricing advantage over traditional stores that must, under law, collect sales tax at the cash register.

Online shoppers are supposed to submit payment for tax due, but almost no one does. As a result, many online purchases are tax-free and cheaper than in-store purchases.

The Democratic-led Senate approved a bill last year to enable states to force collection of sales tax on Internet purchases, but it stalled in the House of Representatives. Republicans there opposed it as a tax increase even though online shoppers were already, by law, supposed to pay sales tax.

Separately, the House in July approved a bill to ban new taxes on Internet access. The Senate did not approve that bill, but some House and Senate lawmakers crafted new legislation that would both extend the access tax moratorium and close the online sales tax "loophole."

That, too, stalled after state and local governments pushed back, with as much as $500 million in tax revenue on the line and potentially more put at risk by a longer moratorium.

Buying time with a temporary extension of the access tax ban, House Republican leaders have signaled that all these matters are likely to be taken up again early in 2015, when Republicans will control both the House and Senate.

(Reporting by Kevin Drawbaugh; Editing by Will Dunham)