1. Extend or broaden the current tax moratorium.

Members of Congress have introduced legislation which would make permanent the Internet Tax Freedom Act's current moratorium on Internet taxation. It is important to stress, however, that while extending or making permanent this moratorium makes sense, it would not necessarily prohibit the imposition of all forms of taxation of the Internet, especially sales taxes. The Internet Tax Freedom Act prohibited "multiple and discriminatory taxes," as well as "access taxes," but did not outlaw all forms of Internet taxation.

In fact, Section 1101(b) of the ITFA went so far as to preserve state and local tax sovereignty by stating explicitly that

Except as provided in this section, nothing in this title shall be construed to modify, impair, or supersede, or authorize the modification, impairment, or superseding of, any State or local law pertaining to taxation that is otherwise permissible by or under the Constitution of the United States or other Federal law and in effect on the date of enactment of this Act.

Therefore, even though "multiple and discriminatory" or "access" taxes would still be prohibited under an extended ITFA moratorium, Congress would have to do one of two things to keep a plan like the NGA's from taking effect: either prohibit all sales and use taxes on electronic commerce or Internet activity, or codify and clarify current Supreme Court jurisprudence regarding taxable nexus.

Representative John Kasich (R-Ohio) and Senator John McCain (R-Arizona) have introduced legislation (H.R. 3552, S. 1611) that embodies the first option. However, although their approach has great appeal and would end the debate over Internet taxation, it also raises several concerns.

First, the Kasich-McCain bills would prohibit only sales taxes imposed on electronic commerce. But what about mail order, catalog, direct phone (1-800), or other current or future forms of interstate retailing? Failure to grant these forms of interstate commerce similar protections would represent a serious breach of tax equity or regulatory parity.

Second, the Kasich-McCain approach could be found unconstitutional. The Supreme Court recently has held Congress to a higher standard when federal legislators have tried to preempt state and local authority under the Commerce Clause.24

University of Georgia law professor Walter Hellerstein has argued that "these [Supreme Court] decisions do not seriously inhibit the extensive power that Congress plainly possesses to deal with the broad range of problems raised by state taxation of electronic commerce."25

Nevertheless, an argument can be made that the Kasich-McCain approach is too broad and would infringe on the sovereign rights of state and local governments to determine tax policies within their own jurisdictions.