Ever since 1998 the U.S. Congress has, under Republican leadership, extended the Internet Tax Freedom Act. That statute forbids states and localities from enacting taxes on internet access, with few exceptions. That moratorium is scheduled to expire on November 1, and Congressional leaders can’t agree on how to extend it. In fact, rather than coming together to pass legislation, the Senate committee of jurisdiction -->recently canceled a vote on the bill with little warning. With less than four weeks to go before states, cities, and counties are empowered to impose new internet taxes, is Congress simply going to sit on its hands and allow a new round of tax increases? Senators Wyden (D-OR), McCain (R-AZ), and Sununu (R-NH) have sponsored legislation to make sure that Congress never again comes this close to terminating the tax ban. Their bill–which is sponsored by a quarter of the Senate–would extend the internet tax moratorium permanently. Nevertheless, the Senate Democratic leadership seems enamored with a temporary extension. In fact, Roll Call reports that the reason Chairman Inouye canceled the vote is that it was becoming apparent that the Wyden-McCain-Sununu bill would prevail. What are the stakes if the Internet Tax Moratorium is allowed to expire on November 1? Well, prior to the law’s enactment in 1998, ten states and the District of Columbia taxed internet access. Through grandfathering, nine states still do. In 2003 the Washington Post reported that 18 states were taxing internet access in violation of the law, most by reclassifying DSL broadband service to make it subject to telephone taxes. Other jurisdictions simply flouted the law. At least one state (Montana) has already adopted a statute to impose a tax once the federal prohibition expires. If Congress does not act in time, other states and localities will adopt taxes as well. All will press to be grandfathered in, whenever Congress gets around to renewing what will by then be a toothless ‘moratorium.’ How substantial will the tax burden be? According to Wyden, McCain, and Sununu, consumers will face new taxes for internet access upwards of 17 percent. Small businesses might face a substantially greater burden–which led the House Small Business Committee to hold a hearing recently on the threat. House GOP leader Boehner wants prompt action on a permanent ban. And Senate GOP leader Mitch McConnell recently produced a video to bolster support for such a measure. But Senator Reid isn’t terribly enthusiastic. Roll Call makes clear that this isn’t a priority for him in the next few weeks:
Yes, the Senate might just be too busy expanding entitlement spending and weakening anti-terror laws to prevent a new round of tax increases. I wish I could say it’s a surprise. There’s lots of information on the internet tax moratorium in this paper from the US Internet Industry Association.
