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Wednesday, September 24, 2014

Internet Tax Freedom Act Extended

The Internet Tax Freedom Act (ITFA), originally enacted in 1998 (P.L. 105-277, 10/21/98) and renewed twice, was set to expire on November 1, 2014. Its original expiration date was October 21, 2001 and then November 1, 2007. The ITFA prohibits state and local governments from imposing taxes on Internet access fees (unless already imposed and enforced before 10/1/98) or imposing any multiple or discriminatory taxes on electronic commerce.

H.J. Res 124, Continuing Appropriations Resolution 2015, was signed into law on 9/19/14 (P.L. 113-164). It provides funding to keep the government running until 12/11/14 and extends the ITFA to that date as well. This resolution was passed in the House on 9/17/14 (319-108) and in the Senate on 9/18/14 (78-22).

What will happen as December 11, 2014 approaches?  Well, H.R. 3086 (113rd Congress), the Permanent Internet Tax Freedom Act, was passed by the House Judiciary Committee on June 18, 2014 (30-4). On July 15, 2014, the full house passed this bill by voice vote. H.R. 3086 would make the ITFA permanent and remove the grandfather provision that has existed since 1998.

The rationale for the ITFA in 1998 was to help the Internet grow. The rationale for permanency was recently explained in the House Report 113-540 (7/3/14) as follows:

“Today, it is precisely the ubiquity of the Internet that councils for a permanent extension. The Internet has become the primary driver of U.S. economic growth, innovation and productivity. The Internet is indispensable for finding jobs and accessing education and healthcare resources. It helps small businesses find new markets and consumers across the country and the world.”
Per the Congressional Budget Office (CBO), H.R. 3086 imposes an intergovernmental mandate per the Unfunded Mandates Reform Act (due to the expiration of the grandfather provision). The CBO believes that at least seven states and some local jurisdictions in these states benefit from the grandfather provision ((Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin).

The rationale for repeal of the grandfather provision is that states have had many years to find alternative revenues.

Is this law even needed? Hasn't the Internet already grown? Is the slight chance that a state or local government will impose sales tax or some other tax on Internet access fees going to cause people to stop using the Internet? Would they even notice? How many states are even likely to do this?

Why does the federal government need to tell the states what they can't tax? Isn't that what the voters in that state are supposed to do?  If Congress is concerned about supporting use of the Internet, why don't they waive federal excise taxes when you buy airline tickets online? Why don't they give subsidies to Internet providers to pass along to customers?

What do you think?

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