On November 1st, the most recent extension of the Internet Tax Freedom Act (ITFA) will expire. This law was originally enacted (and signed by Bill Clinton) in 1998 in an effort to preserve the commercial and educational potential of the internet. Its purpose is to bar federal, state, and local governments from taxing internet access and imposing discriminatory taxes on bandwidth and digital content like email. Although the law also bars the imposition of multiple taxes on e-commerce, it does not (contrary to popular belief) prohibit sales taxes on internet purchases.
Like many laws, the ITFA was drafted to include a sunset clause, a proviso stating that the bill would automatically expire on some predetermined future date. Since its original enactment, the law has been renewed twice (most recently as the grandiloquently named Internet Tax Nondiscrimination Act) each time pushing the day of expiration further into the future. Now, as before, state and local governments, who so often abide by the credo that what can be taxed should be taxed, are eager to see the sun set a third time. They can’t wait to get their money-grubbing hands on such a tempting cookie jar of untapped revenue.
All of us are vividly aware of the host of federal, state, and local taxes that often add between 10 and 20 percent to our other telecommunications bills (e.g., cell phone, land line, and cable bills). [Governments] can’t wait to get their money-grubbing hands on such a tempting cookie jar of untapped revenue …Similar taxes will surely be tacked on to the internet access fees we pay if the ITFA is allowed to expire. As with all such taxes, eliminating them once they are in place will be nearly impossible. (Remember the federal excise tax on long-distance calls that was enacted in 1898 to help pay for the Spanish-American War and was only recently axed by the Treasury Department?) Such taxes may also set a dangerous precedent, opening the door for sales taxes on inter-state e-commerce. While the supreme court has ruled that it is illegal for states to charge sales tax on purchases made from companies that do not … the lapse of the ITFA may embolden states to try to establish collusive interstate tax collection efforts …have a brick and mortar (i.e., physical) presence within the state, few people realize that the same court ruling has decreed that the purchaser has a legal obligation to remit the tax to the appropriate state collection agency. Of course most of use seem to “overlook” this obligation. However, the lapse of the ITFA may embolden states to establish collusive interstate tax collection efforts to keep track of e-commerce purchases and share this information between states, empowering state revenue collection agencies to enforce tax collection on online purchases. Such a collusive effort would subvert the federalist system of tax competition between states that helps to suppress growing tax burdens.
Most of us are aware that internet related commerce and business is one of the most vibrant segments of our economy. The internet allows efficient little guys to compete in a global marketplace with multinational corporations. The internet also empowers poor and middle income individuals to cheaply find information that allows them to more justly and efficiently obtain goods and services. Growth of the internet economy is spurred by the relatively low tax burdens imposed on consumers when obtaining access to and making use of internet services. To ensure that internet commerce remains a vibrant and growing segment of our economy, and to help your bottom line, call, write, or email your Representatives and Senators today and tell them to extend the Internet Tax Freedom Act. Better still, encourage them to vote to make the ITFA permanent. Two bills have been introduced (H.R. 743 in the House and S. 156 in the Senate) to do just that, but at the time or writing neither have come to the floor for debate and a vote. Act today because sunset for the ITFA comes November 1st 2007.
Image: “Two Tax Collectors” by Marinus van Reymerswaele
Update Nov. 2, 2007: Both houses of congress passed a bill extending the Internet Tax Freedom Act for another seven years, until 2014. Why not make it permanent? Well, it seems congress never wants to make tax breaks permanent, they may need that money someday to pay for governmental expansions and entitlement spending.