Taxation: Taxing The 23 Weekly Hours Americans Spend Online

Erin Carson, Lead Analyst Friday October 17th 2014

Under current law, federal, state, and local governments are prohibited from taxing Internet access. The Internet Tax Freedom Act, signed into law in 1998, places a moratorium on any taxes on Internet taxes, and on “multiple and discriminatory taxes on electronic commerce.” This means that the law restricts Internet access from taxation for a specific amount of time – not indefinitely. Since 1998, the law has been extended in 2001, 2004, and 2007. The latest extension expires in November 2014, adding it to the growing list of critical bills that Congress must consider in the short weeks remaining in the 113th session.

In general, most lawmakers favor a permanent prohibition on Internet access taxes. The House passed H.R. 3086 – Permanent Internet Tax Freedom Act on July 15 under suspension of the rules. Broadly speaking, proponents say that the bill would guarantee freedom of access for Internet use. However, bill is opposed by some states, who see the permanent ban as a loss of significant tax revenue, and by others in the telecommunications industry, who say that it would allow communications services such as Skype or Snapchat to allow consumers to bypass taxes they would otherwise pay on cellular networks.  

Complicating the issue is the Senate version of the bill, S. 2609 – Marketplace and Internet Tax Fairness Act, which includes provisions that require online sellers to collect state sales and use taxes. The Senate bill is a combination of the House’s Internet Tax Freedom Act and the Marketplace Fairness Act, raising a whole separate taxation debate.The root of the debate is that the Permanent Internet Tax Freedom Act does not address whether or not state and local sales taxes should apply to online purchases. As a result, under current law, state and local governments cannot enforce their existing sales taxes on out-of-state Internet purchases, which “brick-and-mortar” businesses say give online retailers an unfair advantage.

In addition to these two bills currently up for debate in the Senate, Congress has introduced a number of proposals to address the issue of Internet taxation. A full list is provided below.

Listing of related bills in Congress

  1. S. 2609 – Marketplace and Internet Tax Fairness Actsponsored by Sen. Michael Enzi (R-WY): would restore states’ rights to enforce state and local sales and use tax laws. (Placed on Senate calendar 7/16/2014)
  2. H.R. 3086 – Permanent Internet Tax Freedom Act, sponsored by Rep. Bob Goodlatte (R-VA): would make permanent the ban on state and local taxation of Internet access and on multiple or discriminatory taxes on electronic commerce (Passed House 7/13/2014)

  3. S.31 - Permanent Internet Tax Freedom Act Of 2013, sponsored by Sen. Kelly Ayotte (R-NH): would make permanent the ban on state and local taxation of Internet access and on multiple or discriminatory taxes on electronic commerce (Referred to the Finance Committee 1/22/2013)
  4. HR.434 - Permanent Internet Tax Freedom Act, sponsored by Rep. Steve Chabot (R-OH): would make permanent the ban on state and local taxation of Internet access and on multiple or discriminatory taxes on electronic commerce. (Referred to the Judiciary Committee 1/29/2013)
  5. S.1431 - Internet Tax Freedom Forever Act, sponsored by Sen. Ron Wyden (D-OR): would make permanent the ban on state and local taxation of Internet access and on multiple or discriminatory taxes on electronic commerce  (Referred to the Finance Committee 8/12013)
  6. S.2735 - A Bill To Provide For An Extension Of The Internet Tax Freedom Act, sponsored by Sen. Mark Pryor (D-AR): would extend the Internet Tax Freedom Act through December 14, 2014 (Referred to the Committee on Finance 7/31/2014)
  7. S. 743 – Marketplace Fairness Act of 2013sponsored by Sen. Michael Enzi (R-WY): would require all online sellers that made more than $1 million in the preceding calendar year  to collect and remit sales and use taxes for their remote sales (Passed Senate 5/6/2013)
  8. S. 336 -- Marketplace Fairness Act of 2013, sponsored by Sen. Michael Enzi (D-WY): would require all online sellers that made more than $1 million in the preceding calendar year  to collect and remit sales and use taxes for their remote sales (Referred to Finance Committee 2/14/2013)
  9. H.R. 684 - Marketplace Fairness Act of 2013, sponsored by Rep. Steve Womack (R-AR): would require all online sellers that made more than $1 million in the preceding calendar year  to collect and remit sales and use taxes for their remote sales (Referred to Judiciary Committee 2/14/2013)
  10. H.R. 3724 – Digital Goods and Services Tax Fairness Act of 2013 sponosred by Rep. Lamar Smith (R-TX): Prohibits a state or local jurisdiction from imposing multiple or discriminatory taxes on the sale or use of a digital good or service delivered or transferred electronically to a customer. (Referred to the Judiciary Committee 12/12/2013)

  11. S. 1364 – Digital Goods and Services Tax Fairness Act of 2013, sponsored by Sen. Ron Wyden (D-OR): Prohibits a state or local jurisdiction from imposing multiple or discriminatory taxes on the sale or use of a digital good or service delivered or transferred electronically to a customer. (Referred to the Judiciary Committee 12/12/2013)

Want more?

National Council of State Legislators: http://www.ncsl.org/research/fiscal-policy/collecting-ecommerce-taxes-an-interactive-map.aspx 

Economist: http://www.economist.com/news/united-states/21575785-both-parties-are-getting-keener-tax-sales-internet-click-and-pay

The Hill: http://thehill.com/policy/finance/213179-senate-prepares-short-term-internet-moratorium 

Marketplace Fairness Coalition: http://www.marketplacefairnessnow.org/

FreedomWorks: http://www.freedomworks.org/content/new-poll-shows-marketplace-fairness-act-universally-opposed 

Sales Tax Changes: http://salestaxchanges.com/