Tax Ban in Question

In what could create a dramatic shift for many facets of online industry reliant on untaxed e-commerce transactions, The House of Representatives will decide whether to amend the Internet Tax Freedom Act (ITFA) of 1998, which currently enforces a ban on state and local taxes on Internet services and industry-specific Internet sales transactions.

The current moratorium on Internet taxation expires Nov. 1, 2003.

The ITFA was first authored by Representative Christopher Cox (R. Calif.) of Newport Beach and Senator Ron Wyden (D.-Ore.) to prohibit taxes on Internet access, taxation by multiple states on products purchased over the Internet, and taxes that treat Internet purchases differently from other types of sales.

Lawmakers interested in lifting the ban and turning the tables on Internet taxation have so far been stymied by a state-wide block on collecting tax levies as ruled nearly ten years ago by the U.S. Supreme Court. That ruling as it holds requires only businesses with a "physical presence" in the same state as the consumer to be able to legitimately collect taxes.

Many critics of the ITFA say that the extended moratorium significantly reduces state and local government revenue.

Currently 12 states are exempt from the ITFA. However, if The House of Representatives votes to extend the ITFA, those exemptions would be overturned and there could be state revenue losses in the hundreds of millions, depending on Internet growth projections, say ITFA critics.

The ITFA ban on Internet taxes first expired in October of 2001 and was again signed into law for a three-year extension on Nov. 1, 2001 as the Internet Non-Discrimination Act.

So far Congress is holding fast to the idea that Internet taxation would have an adverse effect on the economy and e-commerce as a whole.

"Given the continued softness in the tech economy, this is hardly the time for new taxes on the Internet," stated Rep. Cox. "Rather, providing long-term certainty about tax policy is one of the necessary ingredients for a tech rebound."

In January of this year Rep. Cox and Senator Wyden introduced additional legislation that would indefinitely extend the ban on "new and discriminatory" taxes on the Internet.

That same bill is being passed before the House of Representatives this week in hopes of securing the ban on taxation indefinitely, according to Rep. Cox's office.

"By ending this unfair practice once and for all, we can protect Internet users from unnecessary and burdensome taxes," Cox continued. "This will encourage spending, promote investment, expand business, and create new jobs."