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    Taxing the Internet
    The Vault

    Taxing the Internet

    July 2015

    Early in June, the House of Representatives unanimously passed the Internet Tax Freedom Act (ITFA), which bans Internet access taxed by state and local governments.  This is not a new piece of legislation.  ITFA was passed initially in 1998  to reduce costs and spur Internet deployment.  It has been extended five times.  The House’s vote in June seeks to write the ban into law permanently.

    For consumers, a permanent ban is a win; Americans certainly do not need more taxes and, at least for once, at least once side of Congress agrees.  But writing the ban into law will not be easy.  A totally separate piece of legislation, the Marketplace Fairness Act (MFA), championed by Senator Lamar Alexander (R-Tenn.), could complicate the issue.  The MFA would allow state governments to collect sales taxes from remote retailers (e.g., Amazon), that do not physically reside in their states. It may sound far-fetched, but it’s getting a huge boost from states that do not have an income tax and suffer from falling sales taxes due to online shopping.  In 2014, MFA supporters tried to couple the ITFA and the MFA into one bill, essentially attempting to use the massive support from the first to push through the latter.  It failed, but chatter on Capitol Hill indicates this could very well happen again.  If so, the ITFA faces an uncertain future.

    Everyone should keep their eye on this (who doesn’t use Internet?) but be especially mindful if your business deals in online sales.  With the 2016 election season ramping up, the potential for Congress to act hastily in combining bills and seeking to quickly vote on them increases. The August recess is coming, and Congress must advance or reject the vast majority of bills before that recess.  ITFA risks expiration once again.

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