Bipartisan Proposal Would Ban Internet Taxes Forever

A bipartisan group of House lawmakers are reviving legislation that would permanently extend a ban on taxing Internet access, signaling that efforts to pass a separate bill to widen online sales taxes may continue to face resistance in the lower chamber.

The quick reintroduction Friday of the Permanent Internet Tax Freedom Act likely serves as stagework for a bigger fight in Congress over whether to expand the sales tax on purchases made at online retailers like Amazon and eBay. While the Senate has shown support for an online sales tax bill, it has failed to gain traction in the House, where many lawmakers are reticent to endorse any new taxes.

A permanent Internet access ban, if passed cleanly, would deprive backers of online sales taxes of one of their best tools for leveraging their favored legislation. Even some retail lobbyists have conceded that an online sales tax bill may only be able to pass Congress if piggybacked to a measure extending the moratorium on Internet access taxes.

A ban on taxing Internet access has been on the books since President Clinton signed a bill into law in 1998, enacted in part to protect the growth of the then-nascent technology. It has been renewed four times since then.

But the House has shown it wants to make the ban permanent.

House Judiciary Committee Chairman Bob Goodlatte, R-Va., on Friday reintroduced the Permanent Internet Tax Freedom Act, which would enact a permanent ban on federal, state, and local taxes on Internet access. Republican Reps. Tom Marino and Steve Chabot and Democratic Reps. Anna Eshoo and Steve Cohen are also sponsoring the legislation. Republican Sen. John Thune and Democratic Sen. Ron Wyden have indicated they intend to reintroduce the permanent-ban proposal this year as well.

"Whether business owners or jobseekers, grandparents or students, all Americans benefit from tax-free access to the Internet," Goodlatte said in a statement. "Year after year, Congress has chosen to temporarily extend the bipartisan ban on Internet access taxes. The time has come to make this ban permanent."

Last summer, the House passed the same measure on a voice vote, but it lost momentum in the Senate as a bipartisan cohort of senators attempted to combine it with a more controversial bill that would expand online sales taxes. That measure, dubbed the Marketplace Fairness Act, would grant states the power to tax purchases from out-of-state online retailers that boast annual sales over $1 million.

The combined package never moved out of the Senate, however, in large part because House Speaker John Boehner made clear he would not take up online sales tax during the lame-duck session. Instead, Congress was forced to punt on the issue by extending the ban on Internet access taxes by less than a year. It is currently set to expire on Oct. 1 of this year.

Boehner promised to revisit the online sales tax in the new Congress, according to lawmakers that attended a closed meeting in December to discuss the matter. But Friday's reintroduction of the Permanent Internet Tax Freedom Act signals that at least some of the House may still be unwilling to negotiate on online sales tax.

A permanent ban on Internet access taxes would also end such fees currently in place for seven states that are exempt from the moratorium. Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin are allowed to exact access taxes because of a grandfather provision in the current law.

A permanent ban is widely supported by Internet freedom and antitax coalitions. The left-leaning Center on Budget and Policy Priorities, however, has called the legislation "harmful" and estimated last year in a report that the ban costs states up to $7 billion annually in potential revenue. The seven states that currently have taxes on Internet access would collectively lose an estimated $500 million in annual revenue, according to the report.

(Image via Jirsak/Shutterstock.com)