Internet Tax Freedom Act to become permanent

Imagine if you were taxed on the volume of emails that you received and sent, or by the traffic to your business website? Thankfully Congress put a law in place back in 1998 that has kept that from happening.

The Internet Tax Freedom Act was created to foster the growth of the internet at a time when it was relatively new, by prohibiting any level of government from imposing discriminatory taxes on internet access. This law also prevented taxation on electronic commerce, meaning that if you reside in Texas and buy a book online from Powell’s Books in San Francisco, you cannot be taxed on that purchase by both states.

State and local taxation permanently banned

However the law placed only a temporary moratorium, and has been renewed several times over the past 17 years with only minor adjustments. In June of this year, the House passed its version of the Permanent Internet Tax Freedom Act (H.R. 235) to permanently ban state and local taxation on the Internet.

The Senate had lagged on their version known as the Internet Tax Freedom Forever Act (S.431) but was extended by a continuing resolution into next week. Members of a House-Senate conference committee approved a permanent extension of the Internet Tax Freedom Act as stated in section 922 of their December 9th House Report accompanying the Trade Facilitation and Trade Enforcement Act of 2015 (H.R. 644).

Sales tax debate continues

Congress is expected to finalize the permanent ban by the end of the year, by amending language in support of the PITFA to the larger legislation. Any states that were grandfathered in due to having taxes in place prior to 1998 will be required to phase out their taxation over the next few years.

The sales tax debate will continue as the moratorium applies only to the internet access taxes. The conference report recommends a temporary extension until June 30, 2020, for multiple and discriminatory taxes on electronic commerce. Vendors and purchasers may still have to deal with the issue of remote sales tax in another five years.

Lobbyists fighting hard to keep it untaxed

Meanwhile three major telecommunication associations including the National Cable & Telecommunications Association, CTIA – The Wireless Association, and the United States Telecom Association are urging the Senate to support this permanent legislation to “ensure that every American can afford to participate in the digital economy…” in their December 14, 2015 letter to members of the U.S. Senate.

As representatives of the largest fixed and mobile broadband providers including Comcast and Verizon, these lobbyists also warned that expiration of the ITFA would likely increase cost of broadband access in part to “an imminent threat” due to the Federal Communications Commission’s reclassification of broadband services as a Title II telecommunications service in February of 2015.

The good news for business

What’s most interesting about these groups’ support of the legislation is that the ITFA was at the forefront of last year’s debate regarding their reclassification as part of the FCC’s net neutrality order, and requires that Internet providers treat all web traffic equally – no blocking of lawful content or services, no throttling and no paid prioritization.

In the long run, this legislative change will help keep the cost of doing business online down for new and small business owners.