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    Internet Tax Ban Made Permanent
    The Vault

    Internet Tax Ban Made Permanent

    February 2016

    The debate over whether Internet service should be subject to sales tax is effectively over.  

    Earlier this month, the Senate approved H.R. 644, the Trade Facilitation and Trade Enforcement Act of 2015, which the House handily passed last December.  Just yesterday, President Obama signed into law that legislation, making existing bans permanent, and putting an end date on Internet taxes for the few states that still collect them.  

    First passed in 1998, the Internet Tax Freedom Act encouraged consumers to get online by not taxing access to things like dial-up or DSL Internet access.  It was short-sighted in the sense that it needed to be periodically renewed, a process it’s undergone five times in the years since.  The original act included a grandfather provision for states that had already been collecting taxes on Internet access (though many decided to cease collecting the tax anyway).  Under the new law, those states still collecting (HI, NM, ND, OH, SD, WI, TX) will have to begin phasing out Internet taxes, and stop completely by 2020.  

    Make no mistake, this new legislation does not resolve the hotly contested issue of taxes for online purchases.  The main thing to take away here is that logging onto to the Internet will forever be tax-free.  What you buy while you’re logged on is still up for debate.  

    Where does the issue of online purchases stand?  The Marketplace Fairness Act, which would enable state governments to collect sales taxes and use taxes from remote retailers with no  physical presence in their state, is still bogged down in Congress, though Senate Majority Leader Mitch McConnell (R-Ky.) has made public comments promising a vote on it later this year.  But many states are getting antsy -- and creative.  Utah, for example, is considering legislation that would include certain third-party delivery services under the “physical presence” definition. Colorado law now requires out-of-state retailers to provide the state a list of in-state customers so it can tax them.  According to the Wall Street Journal, more than a dozen states are considering imposing regulations that would allow them to collect sales tax on Internet purchases made within their borders.  The Marketplace Fairness Act enjoys bipartisan support, and technology has all but eliminated the costs and burdens associated with tax collection.  Combine that with the “nuisance legislation” states are passing, designed to force Congress’ hand to finally draft definitive legislation that applies to all states, and I think it’s safe to say that passage of the bill will eventually happen.  

    For now, enjoy logging onto the Internet tax-free, and know that it will always be so.


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