House Panel Approves Lasting Moratorium on Internet Access Taxes

The House Judiciary Committee backed a bill on Wednesday that would make permanent a moratorium that bans state and local governments from taxing access to the Internet.

The panel approved HR 3086, known as the Permanent Internet Tax Freedom Act, by a 30-to-4 vote.

“The Internet increasingly serves as a daily requisite for millions of Americans, businesses, and schools. It has transformed our economy and how we conduct business, communicate, educate, and live our lives,” House Judiciary Committee Chairman Bob Goodlatte (R-VA), who sponsored the bill, and other lawmakers said in a joint statement following the vote. “The Permanent Internet Tax Freedom Act passed by the committee today permanently bans taxes on Internet access. This broadly bipartisan bill ensures that access to the Internet is not burdened by unnecessary costs and that Americans can continue to access the Internet tax free.”

Four Democrats voted against the legislation: representatives David Cicilline (RI), Judy Chu (CA), Jerrold Nadler (NY), and Bobby Scott (VA).

The moratorium on Internet access taxes, which was enacted in 1998, was last extended in 2007 and is set to expire on November 1, 2014. Big telecommunications companies are already preparing notices to send out to customers in coming weeks, saying the possibility exists that they will have to start collecting state and local taxes on Internet access soon, John D. McKinnon of the Wall Street Journal noted in an article on Wednesday.

Many legislators have long-supported a lasting ban on Internet access taxes, but Congress has been unwilling to make the law permanent.

A group of Democrats tried to push back on the bill by supporting an amendment from Representative John Conyers (D-MI), the committee’s ranking member, that would have extended the prohibition for four years and allowed states already accepting taxes to keep bringing in that revenue, Julian Hattem of The Hill reported. However, that amendment was defeated by a vote of 12-21.

“Eliminating those protections would cost states and local governments to lose hundreds of millions of dollars through reduced tax revenue,” Conyers said, noting that Texas could lose as much as $350 million a year, according to the article.

The bill would require the eight states with current Internet access taxes that were grandfathered in after 1998 to eliminate them.

According to McKinnon’s article, extending the moratorium creates an opportunity for senators who want to combine it with legislation to allow states to collect online sales tax from out-of-state Internet merchants.

However, the US Supreme Court ruled in 1992 that a state can’t force an out-of-state merchant to collect its sales tax unless the merchant has a physical presence in the state.

 

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