Tax Ban Update

Cory Kincaid
The U.S. House of Representatives took the heat off the Internet industry today by deciding to pass a bill that will indefinitely extend the moratorium on Internet taxation and remove a grandfather clause that exempts certain states from the ban.

The bill was passed by voice vote in The House and will apply to Internet access, taxation by multiple states on products purchased over the Internet, and taxes that treat Internet purchases differently from other types of sales.

Originally scribed by Representative Christopher Cox (R. Calif.) of Newport Beach and Senator Ron Wyden (D.-Ore.), the Internet Tax Freedom Act (ITFA) of 1998 has gone through several incarnations and was due to expire on Nov. 1.

The ITFA does not apply to online sales tax, which is limited only to companies that can prove a "physical presence" in the same state as the consumer, according to federal law. That law states that Internet merchants must charge sales taxes only if the buyer is located in the same state where the seller has a store or distribution center.

But according to Rep. Cox, that taxation rule captures relatively few Internet sales and fails to address how states would enforce collection. Most states require consumers to pay taxes on items they buy online, but such laws are difficult to enforce.

Rep. Cox has been quoted as saying that his main motivation in pushing the IFTA bill through The House is to make the Internet access more affordable for consumers.

The ITFA bill includes a provision that would prohibit states from taxing the DSL and dial-up access service that telephone companies often bundle with traditional voice services.

"Today, Republicans and Democrats have come together to say that no matter how we might choose to fund government services, we all agree that it would be counterproductive to create new taxes that target the Internet, which are harmful to consumers, destructive to technological innovation, and bad for our economy," stated Rep. Cox.