Representative Cliff Stearns (R-Florida) is developing the bill, which is expected to be ready by July.

House committee chairman Billy Tauzin (R -Louisiana) told news sources that Stearns' legislation would seek to exclude states and their respective cities and counties from taxing Internet downloads, regardless of whether Congress ends its present moratorium on online sales taxes.

Tauzin added that his committee plans to differentiate which so-called Internet activities should be subject to some sort of equitable state sales taxation and which ought to be exempted altogether.

Compromise and Confusion

According to news sources, Stearns' bill seeks to be a compromise between the states, most of which want some sort of taxation, and Internet retailers who claim that applying sales taxes is an impossibility given the complexities of tax laws between states and, in many cases, within states themselves.

Stearns told news sources that he is passing around two versions of his bill in the hope of finding some middle ground among supporters in his committee, congressional Democrats, and members of the House Judiciary Committee.

The Judiciary Committee, particularly its subcommittee on commercial and administrative law, has already been busy this week seeking solutions for the Internet taxation issue and has often been at odds with Commerce Committee members.

Uniform Rate Sought

While a spokesperson for Stearns declined to offer NewsFactor Network any specifics on the upcoming tax bill before its official completion, Stearns has indicated that his bill will take a similar approach to that of Senator Ron Wyden (D-Oregon).

Wyden's bill, if passed in its present form by the Senate and then the House, would enforce a uniform tax rate much like the value added tax (VAT) system used by most European countries.

Stearns was quoted as saying that if each of the 50 states develops its own unique taxation rates, "the horse will be out of the barn."

However, some observers say 50 different tax codes would be a huge improvement in streamlining the tax structure. Internet retailers lobbying against any such legislation have said that at present, approximately 7,600 different local taxation rules exist.

Making It Easy

Kevin Noonan, vice president of Internet and media research at Boston-based consulting firm Yankee Group, told NewsFactor he is skeptical about the Commerce Committee's decision to potentially exclude digital media from any sort of taxation.

"I don't think the systems [for calculating taxes] are sophisticated enough to figure out online music downloads" and other media, especially when companies are still struggling with finding an acceptable technology to download such media easily and effectively while respecting intellectual property concerns," Noonan said.

Noonan suggested that online retailers could price media with the tax already included and then send that added portion back to the states.

However, Noonan said that his tax law professor taught him firsthand the realities of the U.S. tax structure.

Said Noonan: "He [said] it can never be fair and equitable" under the present conditions.