House Passes Internet Tax Moratorium

On Wednesday, the House of Representatives passed the Internet Tax Non-Discrimination Act, the bill that imposes a permanent ban on taxes on Internet services. The current moratorium, set to expire on November 1, 2003, was a temporary fix installed two years ago, providing legislators with time to debate the issues of the permanent moratorium.

The bill, H.R. 49, amends the Internet Tax Freedom Act (IFTA), to provide for a permanent moratorium on state and local taxes on all Internet access services without regard to speed, technology, or provider. Both broadband and dial-up services are covered by the bill. The bill now goes to the full Senate where it has already met with approval from the Senate Commerce Committee. President Bush has indicated that he will sign the legislation.

Several states currently assess Internet access taxes in various forms. Some states tax Internet services that are bundled with telephone services. Other states have been able to sidestep the Internet tax moratorium because they had laws in place allowing taxation of Internet services before the first moratorium was passed in 1998. All of these states will be required to repeal their Internet taxes should the new permanent moratorium become law.

Many people confuse the Internet access tax moratorium with legislation affecting sales tax on Internet purchases. The two taxes are not the same, and this legislation does not affect sales tax on purchases. Several state governments are working together under the auspices of the Streamlined Sales Tax Project that would provide a unified method for assessing and collecting sales tax on Internet sales. Those states are planning to integrate sales taxes into online sales by 2006.

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