The Internet Tax Freedom Act has prevented a majority of state and local governments from taxing Internet access for 15 years. Now the law is set to expire, and lawmakers in Congress have so far done little to prevent Web access taxes from hitting millions of Americans after Nov. 1.
A bipartisan coalition of representatives support the tax levy, but a renewal of the reprieve is stalled on Capitol Hill as legislators debate whether or not to lump it in with another, less-popular bill permitting states to collect sales taxes from Internet retailers based out of state.
Lawmakers in support of the out-of-state tax for merchants hope that by combining the legislation with the more-broadly popular Internet-access tax ban, they can force both measures through Congress together.
“I think enough interested parties would insist that if we’re going to pass that [Internet-access tax ban], this other component might be attached to it,” Utah Republican Rep. Jason Chaffetz said in a Wall Street Journal report. Chaffetz is heading the lower chamber’s effort to compromise on sales-tax legislation.
“To think the first would move unattached is fantasy land at this point.”
Traditional brick-and-mortar retailers with online sales presences are some of the biggest business supporters of the Internet-sales tax bill, and claim the lack of forces them to inadvertently pay customers’ share of taxes on a purchases, and hurts profits. Businesses believe that by tying the two measures together, the continued lack of Internet-access taxes would ease the financial impact on voters.
The Senate passed a version of the sales-tax legislation, dubbed the Marketplace Fairness Act, in 2013, but has since stalled upon entering the decidedly anti-tax, Republican-controlled House. Combining it with the access-tax ban, which on its own sports 200 bipartisan co-sponsors in the House, threatens to throw a roadblock in front of the ban in an already bitterly divided, unproductive Congress amid a closely contested election year.
Numerous telecommunications companies anticipating a fight are already preparing to warn customers as early as July that they may have to start paying $50 to $75 more for Internet connections per year, according to an estimate by a wireless industry consultant.
“Washington always likes to walk right up to the edge and look in the abyss,” CTIA-The Wireless Association’s Vice President for Government Affairs, Jot Carpenter, said. “If they fail [to compromise], then I think there is a risk” that Internet service providers could face state taxes.
Some experts predict it would take some time for states to pass authorizing legislation for new tax laws, and that carriers wouldn’t be hit immediately. Others speculate some states might simply add new rules to existing tax laws, and implement them immediately.
State-access taxes could cost the industry several billion dollars annually, with wireless alone taking a $2-billion hit.
Supporters of the Internet Tax Freedom Act are lobbying Congress to get a renewal passed before its August recess, and a spokesman for the House Judiciary Committee, which is overseeing both the sales-tax bill and access-tax ban in the lower chamber, said the committee is “looking at these issues separately.”
A spokeswoman for Senate majority whip and Illinois Democrat Dick Durbin, who strongly backed the upper chamber’s sales-tax bill, said the senator “is keeping all options open in terms of moving the Marketplace Fairness Act.”
“Renewing ITFA would protect consumers from a noticeable jump in their bill every month for access to the Internet,” the House Judiciary Committee spokesman said.