AUSTIN, TEX.--State Rep. Rick Green and a local online businessman have formed a political action committee with the questionable goal of making Texas a tax-free zone for Internet companies selling to other companies in state.

Green said he wants to attract more dot-com companies to Texas by providing them a tax shelter. If Texas doesn't offer the sales-tax exemption, he said, those companies and their employees will do business elsewhere.

He proposes to offer the tax break to Internet companies without a retail outlet that are selling to other Texas companies There is very little such e-commerce now, Green said, but creating a tax haven could grow such businesses in the future.

The problem with Green's proposal is not that it would be a blow to the state treasury but that it would establish a two-tiered sales-tax structure in a state that depends heavily on the sales tax for state and local revenue. Texas, which has no income tax, is particularly vulnerable to the effects of a sales-tax exemption because much of this state's revenue comes from the 6.25 percent sales tax, among the nation's highest.

Although e-commerce is only 1 percent of the retail economy today, online buying and selling are expected to grow exponentially.

A year ago, Congress made the mistake of imposing a three-year moratorium on online retail sales taxes, acting before a federal commission could report on the impact of the ban on city and state revenue.

The commission is expected to recommend that the tax shelter not continue. …