The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Time Wasting Away With Internet Tax Ban Set to Expire

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


On December 16, 2014, the Internet Tax Freedom Act was temporarily extended in the Consolidated and Further Continuing Appropriations Act, 2015 (H.R. 83), keeping the ban on Internet access taxes in place until September 30, 2015.  Unfortunately, time is once again running out and only the House of Representatives has taken any action on the ban, this time making it permanent.

One would think that making the moratorium on Internet taxes permanent would be a “no brainer.”  The Internet Tax Freedom Act was enacted in 1998 so that the growth of the Internet would not be hindered by excessive taxation by federal, state, or local governments, and has been extended five times since then.  The moratorium has helped the Internet develop into a driver of healthy economic growth.

Since 1998, Amazon, Facebook, Google, Netflix, Twitter, Yahoo and others have become household names.  Consumers are purchasing items online, students are performing research projects for school, and individuals are connecting via social media like never before.  Unfortunately, because the moratorium has only been given temporary extensions, it is a ticking time-bomb; it gets defused every few years, but then the clock begins running down again to the next deadline until Congress passes another extension.

Not only is the Internet being accessed in the home, but consumers are also connecting to the Internet through mobile devices.  Increasing number of schools and universities are requiring students to access the Internet on a daily basis both in the classroom and at home.  At the high school level, some teachers call upon students to pull out their Smartphones and look up information, regardless of whether every student has a Smartphone device or not.  According to the International Telecommunications Union, by the end of 2014, 87.36 percent of individuals in the U.S. accessed the Internet.  Imagine the financial impact to families if the ban on Internet access taxes was lifted, and access was subjected to various state and local taxes. 

When something is unencumbered with high or excessive taxes, consumers will more readily adopt and use it.  A July 28, 2015 Pew Research Center poll found that 85 percent of Americans regularly use the Internet, a significant increase from 2000, when only 52 percent of Americans were online.  On October 8, 2014, the American Action Forum released a study which found that if the Internet Tax Freedom Act was allowed to expire, Internet consumers across the country would be forced to pay an additional $14.7 billion annually in taxes. 

On June 9, 2015, the House of Representatives passed H.R. 235, the Permanent Internet Tax Freedom Act.  This legislation would make the ban on state and local taxation of Internet access and on multiple or discriminatory taxes on electronic commerce permanent.  Similar legislation, S. 431, the Internet Tax Freedom Forever Act, was introduced in the Senate on February 10, 2015, and currently has 50 cosponsors.  However, despite the looming deadline, the Senate has not yet acted on either bill. 

Unfortunately, there are some in Congress who are willing to sacrifice a good bill for the sake of getting something they want to add.  For the past several years, there have been a number of attempts in the Senate to attach language from S. 698, the Marketplace Fairness Act (MFA), or H.R. 2775, the Remote Transaction Party Act (RTPA) to the Internet Tax Freedom Act.  These bills seek to bring “equity” to the taxation of tangible goods sold in brick-and-mortar stores, and items sold online or through remote sales, including catalogue or telephone sales.  Ignoring that many states already have use tax laws in place to provide for the collection of taxes for remote sales, these bills would force online or remote sales retailers would need to either understand or purchase software that would calculate sales tax codes for nearly 10,000 separate state and local jurisdictions in order to collect the appropriate sales tax amounts from purchasers in those jurisdictions.  Both bills would also require states to create an additional central tax collecting authority for these remote sales in order to channel the collected taxes to the appropriate states.   

It is high time that these shenanigans come to an end, and a straight forward up or down vote is taken to pass legislation to make Internet access tax ban permanent.  Consumers would then not have to worry about additional taxes being lopped onto their Internet services, and the Internet will remain a stable driving force for the future economic growth of the nation.

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