Permanent Ban on Internet Access Taxes Backed by US House

All that was needed on Tuesday was a voice vote for the House of Representatives to pass a bill that would prevent state and local governments from taxing access to the Internet.

Now the ball is in the Senate’s court. Senators will need to agree to a permanent ban on Internet access taxation before November 1, when the current tax moratorium set forth by the Internet Tax Freedom Act expires. The ban seems to have bipartisan support in that chamber as well.

“The Internet Tax Freedom Act enabled the growth of a flourishing digital economy and hundreds of thousands of new, good-paying jobs. In my view, when you have something that works, that has stood the test of time, you ought to make it permanent,” Senate Finance Committee Chairman Ron Wyden (D-OR), who co-wrote the 1998 Internet Tax Freedom Act, said in a statement following the House vote on Tuesday. “The principle that no one can discriminate against businesses just because they’re on the Internet is one that benefits consumers, employers, and startups, and should be enshrined in our tax code.”

If the Senate fails to pass its own legislation by November 1, telecommunications companies will be allowed to start collecting state and local taxes on Internet access.

“Today’s strong bipartisan vote by the US House of Representatives is great news for consumers, as they are one step closer to avoiding potential new state and local taxes should the current Internet access tax moratorium expire on November 1, 2014,” Peter Davidson, senior vice president of federal government relations for Verizon Communications Inc., said in a written statement on Tuesday. “Given the broad bipartisan support of this legislation in both chambers, it is imperative that the Senate move quickly to make the Internet Tax Freedom Act permanent, if consumers are to avoid possibly hundreds of dollars annually in new taxes.”

Since the Internet Tax Freedom Act was first enacted in 1998, it has been extended three times, the last of which was in 2007. The bill passed by the House yesterday, HR 3086, known as the Permanent Internet Tax Freedom Act, would make the moratorium lasting.

“The Permanent Internet Tax Freedom Act is a necessary measure to keep Internet access free of taxation. This permanent ban is crucial for protecting access and opportunity for Americans in our growing digital economy. We hope that the Senate promptly acts on this vital legislation before the November 1 deadline,” House Judiciary Committee Chairman Bob Goodlatte (R-VA), who sponsored the bill, and other lawmakers said in a joint statement on Tuesday.

The House Judiciary panel passed the bill by a 30-to-4 vote on June 18. The legislation does not address Internet sales taxes.

According to a July 15 Reuters article, when the moratorium was first imposed, it grandfathered a handful of taxes that were established before October 1, 1998. That meant some states – such as Texas, Wisconsin, and Ohio – that were already taxing Internet connections could continue doing so.

Some did, and for them, especially Texas, the latest bill would put an end to an important government revenue source, some Democrats said during debate on the House floor. The bill is opposed by a number of lobbying groups that represent state and localities, including the National League of Cities, and several large labor unions, Reuters reported.

The National League of Cities contends that as more services move away from a telecommunications/cable delivery system to broadband, the Internet no longer needs special tax protection.

“To protect the fiscal health of local governments and the communities they serve, the National League of Cities cannot support anything more than a short-term extension of the Internet Tax Freedom Act,” the group said in a statement following the House Judiciary Committee’s vote on June 18. “Permanently extending the Internet Tax Freedom Act would distort the federal-state-local relationship as it is a federal preemption of state and local authority.”

The Federation of State Tax Administrators estimated that states and localities could lose at least $500 million a year in tax revenues if the moratorium were made permanent. Texas alone would take a hit of $358 million a year.

The Permanent Internet Tax Freedom Act would also ban “multiple or discriminatory taxes on electronic commerce.” This prevents a consumer from being taxed multiple times on the same online purchase by multiple states and to prevent states from taxing online purchases specifically, according to Reuters.

Related article:

House Panel Approves Lasting Moratorium on Internet Access Taxes

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