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Congress Passes Permanent Internet Access Tax Ban... But May Enable More e-Commerce Sales Tax

from the the-taxes-shall-continue dept

Fri, Feb 12th 2016 3:31pm — Mike Masnick

In 1998, Congress passed the Internet Tax Freedom Act (ITFA), which placed a ban on taxing internet access. The bill was temporary, and every few years had to be extended by Congress to stop attempts to add taxes to the cost of your internet access. For a long time, there's been a push to make the ITFA permanent, and Congress finally did that yesterday, when the Senate approved such a bill (the House approved its version last summer). As Senator Ron Wyden noted in response to this passing, this inevitably saves the public a lot of money on a vital service. He notes that mobile phone service is taxable, and average consumers pay a 17% tax on such service. The President still needs to sign the bill, but it would be a surprise if he vetoed it.

The reason it took the Senate so long to actually vote on this was because a bunch of brick-and-mortar retailers have been trying to sabotage it, by tying the approval of the permanent ban on access taxes to a totally unrelated bill that would force e-commerce providers to charge a sales tax. This is a fight that's been going on for years. Historically, mail order and e-commerce shops didn't have to pay sales tax unless they had a physical presence in a state. This made sense, as the taxes were supposed to be to support local services that those companies relied on. However, brick-and-mortar retailers have been claiming that this is some sort of evil "loophole" because it creates an excuse for why people like shopping online rather than in their stores. So they've been demanding that increasingly onerous tax regimes be placed on online retailers, and insisted that such a bill must be approved in conjunction with the permanent ITFA.

However, in the end, that strategy appears to have failed -- at least for now. The retailers could only get an agreement that Congress will take up the retail sales tax issue later this year, rather than tying the two directly together. Still, it will be worth watching what happens on that issue in the coming months. Expect a full court press of misleading stories about a horrible "loophole" in the coming months, as these stores look to increase the taxes on things you buy online.

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Filed Under: e-commerce, internet, internet access, internet tax freedom act, itfa, sales tax, taxes

11 Comments

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Anonymous Coward, 12 Feb 2016 @ 4:19pm

You have to pay sales tax on Internet purchases anyway. It's just that the companies don't have to collect them for the state if they aren't in the state.

But it's no more a loophole than it is in the physical world. If you go buy a book from a shop in Oregon, the shop doesn't ask if you're from Washington so they can charge you Washington's tax.
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Jason, 12 Feb 2016 @ 6:49pm

I've always found the brick-and-mortar argument (that people flock to online sellers because they didn't charge sales tax) to be pretty unconvincing. Not to say there aren't people who consider that a factor, I just can't see it as being remotely the biggest one. When a (say) blu-ray is fully two or three times the price in a store as it is on Amazon, is it really the 80 or 90 cents worth of sales tax that sends a customer online? I really don't think so.
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Keroberos (profile), 12 Feb 2016 @ 9:27pm

Seeing that only 7 states charge sales tax on internet access (I happen to live in one of them), I don't think this is a really big issue--it only adds less than three bucks to my bill every month and does actually fund the state you are living in (although it would be nice if they could force that revenue into subsidizing rural broadband).

What I wish they would tackle is the ridiculous equipment rental fees that get charged to everyone, and do nothing but line the providers pocket after about 6-12 months when the actual cost of the equipment has been covered.
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Anonymous Coward, 12 Feb 2016 @ 9:54pm

Im paying the usps or the irs not both.
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Anonymous Coward, 12 Feb 2016 @ 9:57pm

Re:
forcing the revenue into rural broadband has a long and glorious history of the money not making it to rural or broadband but stopping somewhere at urban and expanse account.
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JoeDetroit (profile), 13 Feb 2016 @ 3:22am

Sales Tax is a horrible was to tax the population
IMO. It hurts the low income folks and means nearly nothing to the high income people. Yes, it draws some revenue from the underground economy but I would like to see data on that before I believe it's anything substantial.

What to help the the brick & mortar? Eliminate sales taxes entirely.
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Whatever (profile), 13 Feb 2016 @ 4:56am

I don't think it would be shocking to see agreement on a more global sales tax rate for all online sales distributed to the state where the product is delivered.

However, since the United States are generally about as united as a herd of cats, it's unlikely they would ever all agree to head in a single direction. The results are much more likely to be a whole lot more messy and confusing for consumers and retailers alike.
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nasch (profile), 13 Feb 2016 @ 7:00pm

Re:
Not to say there aren't people who consider that a factor, I just can't see it as being remotely the biggest one.

It can be for expensive items. If you're spending 20 bucks probably not, but on a few hundred or a few thousand dollars, sales tax starts to look more significant.
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John Fenderson (profile), 14 Feb 2016 @ 5:42am

Re:
"I don't think it would be shocking to see agreement on a more global sales tax rate for all online sales distributed to the state where the product is delivered."

Oh, god, I hope not. Thankfully, I live in a state that has no sales tax. I would be extremely angry if the feds imposed one and ruined my little utopia.
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383bigblock, 14 Feb 2016 @ 5:51pm

The rules are the same for all
Look, more and more Brick & Mortar businesses also have an online ordering capability. Its too easy to set up an e-commerce site these days. Instead of bitching and forcing folks to pay taxes when there is an opportunity to avoid them they should be figuring out how to get a piece of the action.
Makes me want to never walk into a business if they're lobbying to force sales tax on me for online purchases.
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Jason, 15 Feb 2016 @ 6:18am

Re: Re:
That's true, I hadn't thought of that. The few times I've made truly massive purchases online it's been from a retailer who charged sales tax anyway. But you're right, it can depend on what it is you're buying.
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