A Victory for Internet Freedom
The House of Representatives voted by acclamation Tuesday to permanently extend the Internet Tax Freedom Act. In place since 1998, the law prevents taxes on email and Internet access services, and Web users have never needed it more to prevent a multibillion-dollar avalanche of new fees after its scheduled expiration on Oct. 1.
The Internet is the quintessential instrument of interstate and international commerce. And it needs Congress to protect it from America’s roughly 9,600 taxing jurisdictions. Nationwide, revenuers and regulators show every intention of applying tax burdens online that go far beyond those applied to other goods and services.
On Tuesday House Judiciary Chairman Bob Goodlatte noted the potential impact of a recent decision by the Federal Communications Commission to treat the Internet as an old-fashioned telephone service. Telephone tax rates often run more than twice as high as those for general sales taxes. Mr. Goodlatte warned that the FCC action “emboldens states to apply these telecom taxes to Internet access immediately, should ITFA lapse.”
Scott Mackey and Joseph Henchman found in an October 2014 report for the Tax Foundation that taxes and fees on wireless telephone services average more than 17%. The rates on traditional wired telephone services are similar and would be virtually guaranteed to stunt technological progress even as they punish Internet consumers.
Last year Congress approved only a one-year extension of this popular law. That was mainly because former Senate Majority Leader Harry Reid (D., Nev.) was determined to hold the measure hostage until the House also accepted a separate plan to allow states to reach outside their borders and force online merchants to collect sales taxes.
The hostage-taking has ended now that Kentucky Republican Mitch McConnell is running the upper chamber. This is not to say Republicans have no sympathy for brick-and-mortar retailers competing against small online merchants that don’t have to collect taxes where they have no physical presence. Retail giants, online and off, already collect sales taxes.
But state and local politicians hungry for more revenue have so far refused to present a plan that would allow them to collect the money they want without imposing crushing audit burdens on remote small business owners. Mr. Goodlatte said Tuesday that he continues to hold “productive discussions” on “legislation that levels the playing field between traditional and online retailers without letting states tax and regulate beyond their borders.”
As he noted at a recent hearing, granting such powers to states would permit “lawmakers to dodge accountability for the burdens associated with their policy choices by shifting them onto non-residents who cannot hold them accountable at the ballot box.” Mr. Goodlatte also raised the possibility that “if Congress lets ‘economic presence’ rather than ‘physical presence’ become the standard, states will mostly exempt resident companies from tax obligations while imposing them on out-of-state companies.”
The sales-tax debate will continue. Meantime, the Senate should help consumers now by passing Mr. Goodlatte’s permanent ban on email taxes.0