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House Passes Permanent US Internet Tax Moratorium

by Mike Godfrey, Tax-News.com, Washington

11 June 2015


On June 9, the US House of Representatives passed the Permanent Internet Tax Freedom Act (PITFA), which would permanently extend the Internet Tax Freedom Act (ITFA) and avert a possible tax increase on internet access later this year.

First enacted in 1998, ITFA placed a moratorium on the ability of state and local governments to impose new taxes on internet access, or to impose multiple or discriminatory taxes on e-commerce. ITFA has been extended multiple times and is currently scheduled to expire on October 1, 2015.

The original ITFA moratorium also included a grandfather clause to give states that were taxing internet access before October 1, 1998, a period of time to transition to other sources of revenue. Some have discontinued taxing internet access in support of a national broadband policy, but, for the remaining states, PITFA would eliminate the grandfather clause to make the moratorium effective nationwide, requiring states to repeal any remaining levies.

The Chairman of the House Judiciary Committee Chairman Bob Goodlatte (R – Virginia), who introduced the bill, has previously noted that, "if the moratorium is not renewed, the potential tax burden on consumers will be substantial. The average tax rate on communications services in 2007 was 13.5 percent, more than twice the average rate on all other goods and services. To make matters worse, low income households pay ten times as much in communications taxes as high income households, as a share of income."

It has been estimated that internet access tax rates could be more than twice the average rate on all other goods and services. The bill's sponsors issued a statement adding "the American people deserve affordable access to the Internet and PITFA will help prevent unreasonable cost increases that hurt consumers and slow job creation."

A similar proposal in the Senate is reported to have 49 bipartisan co-sponsors. However, previous attempts to pass PITFA there have been complicated by attempts to tie a long-term ITFA extension to the more contentious Marketplace Fairness Act (MFA), which would allow US states to impose sales taxes on internet purchases made from online retailers outside their borders.

The MFA, a version of which has previously been approved by the (then Democrat-led) Senate and sent to the House for approval, was held up by the House Judiciary Committee. Republicans are wary of the MFA, mainly due to an aversion to what is considered to be an increase in taxation and in tax compliance burdens on smaller businesses.

TAGS: compliance | tax | business | sales tax | tax compliance | commerce | internet | e-commerce | tax rates | United States | retail | services | Tax

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