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Congress Passes Permanent Ban on Internet Access Taxes

March 18, 2016

Lawmakers in Congress approved a trade bill that included provisions prohibiting state and local governments from taxing Internet access or creating multiple or discriminatory taxes on online commerce. In February, the U.S.

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Lawmakers in Congress approved a trade bill that included provisions prohibiting state and local governments from taxing Internet access or creating multiple or discriminatory taxes on online commerce.

In February, the U.S. Senate approved the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), a bill increasing congressional oversight over executive branch nominees and trade agreements. TFTEA contains a “rider,” an additional provision added to the bill, enacting the Permanent Internet Tax Freedom Act (PITFA).

Temporary Permanence  

PITFA, a permanent version of the Internet Tax Freedom Act (ITFA), bars federal, state, and local governments from taxing Internet access. ITFA was a temporary moratorium on taxing Internet access, first enacted in 1998 and repeatedly renewed by lawmakers of both political parties. The most recent renewal occurred in September 2015, when ITFA was included in the Continuing Appropriations Act of 2016, a budget deal reached by Speaker of the House Rep. Paul Ryan (R-WI) and President Barack Obama.

Lawmakers and business organizations supporting a separate bill allowing local and state governments to tax businesses located outside of their physical borders, the Marketplace Fairness Act (MFA), had hoped to tie PITFA to the Trade Facilitation and Trade Enforcement Act, but MFA was not included as a rider.

Bill Was Held ‘Hostage’

Katie McAuliffe, executive director of Digital Liberty, a non-profit organization advocating for a consumer-driven technology and media market, says lawmakers were correct to attach PITFA to the trade bill and leave MFA behind.

“There is really no reason why the ban on Internet access taxes has to be tied to an online sales tax,” McAuliffe said. “Unless the ban is a hostage, then those supporting the online sales tax shouldn’t have such a huge problem with the bills going through Congress separately. The ban is hugely popular [amongst both Democrats and Republicans] and across the nation. It really shouldn’t be a problem for the customs bill to pass the Senate with the Internet access tax ban included.”

Andrew Moylan, executive director and senior fellow of the R Street Institute, says PITFA and MFA had little in common.

“Taxpayers should be happy that the House has moved to put an end to the cynical ploy of combining the Internet access tax and Internet sales tax matters,” Moylan said. “Despite sharing the words ‘Internet’ and ‘tax,’ the two couldn’t be more dissimilar. Banning Internet access taxes is clearly constitutional, is wise policy to protect consumers, and is almost universally supported in Congress. Enacting an Internet sales tax bill, meanwhile, is constitutionally suspect, is spectacularly bad policy for economic growth, and is opposed by a broad swath of the American public.”

D. Brady Nelson (d.brady.nelson@me.com) writes from Washington, DC.

Internet Info:  

Nonna A. Noto, “Extending the Internet Tax Moratorium and Related Issues,” Congressional Research Service, January 17, 2002:  https://www.heartland.org/policy-documents/extending-internet-tax-moratorium-and-related-issues/

Author
Darren Brady Nelson is an Austrian school economist who serves as the chief economist at LibertyWorks and as an associate scholar with the Center for Freedom and Prosperity. Nelson is also a policy advisor to The Heartland Institute.
darren.nelson@me.com

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