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

from the the-taxes-shall-continue dept

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.

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