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With the United States House of Representatives having recently passed the Permanent Internet Tax Freedom Act (PITFA) that would permanently extend a moratorium on internet access taxation, but with the more controversial Marketplace Fairness Act (MFA), which would allow states to impose sales taxes on online purchases, stuck in its Judiciary Committee, certain lawmakers have had the idea of linking the two into one bill in the Senate.
Although a version was approved by the Democrat-led Senate last year, the MFA has become bogged down in the Republican-led House of Representatives, where it has encountered a great deal of opposition and delay, mainly due to an aversion to what is considered to be an increase in taxation, and in tax compliance burdens on smaller businesses. It is also opposed by some Democrats as being discriminatory against those states that do not impose a sales tax.
The MFA would allow states to impose sales taxes on internet purchases by their residents, even though the goods are supplied by online retailers outside their borders. While, under the current tax system, retailers are only required to collect sales tax in states where they also have bricks-and-mortar stores (a physical presence), the MFA would give states the option to require online retailers with national annual sales greater than USD1m to collect the tax, even if the websites lack a physical presence in the state.
State and local Governments are said to view the taxes they cannot collect on most online sales as lost revenue. The National Governors Association and the National Conference of State Legislatures have previously calculated that the present "loophole" costs USD23bn in uncollected taxes each year.
On the other hand, certain states are also looking at an annual revenue-loss of around USD500m if their current ability to "grandfather" their taxes on internet access is lost. While the original Internet Tax Freedom Act placed a moratorium on the ability of state and local governments to impose new taxes on internet access (and is currently scheduled to expire on November 1, 2014), it also gave states that were taxing internet access before October 1, 1998, a period of time to transition to other sources of revenue. The PITFA would eliminate that clause.
As a means of kick-starting its progress in the House, a bipartisan group of Senators have therefore introduced the so-called Marketplace and Internet Tax Fairness Act (MITFA), which would join the MFA to the Senate's version of the PITFA.
If a joint bill was to be passed in the Senate, it is said that it would force the House to choose between allowing the internet tax moratorium to expire later this year, or accepting a vote on the MFA. However, it is also pointed out that, for that to happen, Democrat leaders in the Senate would have to accept to join the two bills there, and that such a move is likely to encounter substantial resistance.
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