The House this week is poised to easily pass a bill banning the taxation of Internet access, but that bill will only shine a spotlight a disagreement brewing in Congress over whether and how to tax sales made over the Internet.
The Permanent Internet Tax Freedom Act is set for a vote as early as Tuesday. The bill, which would permanently prohibit states from taxing Internet access, passed the House by voice vote last year and it’s expected to win overwhelming approval again.
The agreement in Congress on Internet taxation is likely to end there.
As soon as next week, House Oversight and Government Reform Committee Chairman Jason Chaffetz, R-Utah, will introduce the Remote Transaction Parity Act, which would allow states to require remote Internet retailers to collect sales taxes on online purchases.
House Judiciary Committee Chairman Bob Goodlatte, R-Va., is circulating his own proposal, which is now in draft form. “At this point we are working with all interested parties to find common ground,” a committee aide told the Washington Examiner.
Chaffetz’s bill is a variation of a measure the Senate passed last year implementing a similar sales tax authorization for the states.
The Senate bill was combined with the Internet Tax Freedom Act, banning taxation of Internet access. But it was never taken up by the House. That’s because lawmakers have been deeply divided over whether to give states the power to require Internet retailers to collect taxes from online purchasers.
The legislation is favored by lawmakers from Tennessee, Wyoming and other states that do not levy an income tax and instead rely on sales taxes that have steadily declined in recent years because of untaxed remote online sales.
But lawmakers from states that do not collect remote online sales taxes say doing so would hurt the growing Internet retail business and pit “brick and mortar” stores against “brick and click” online businesses.
Retail groups, as well as the National Governors Association, are calling on Congress to first address the sales tax legislation, which they say is needed to level the playing field between Internet sellers and store owners and help states collect needed tax revenue.
“We are very disappointed that the House of Representatives has chosen to take up the Permanent Internet Tax Freedom Act before discussing the tax issue of greatest importance to states — the need to create parity between in-state and out-of-state retailers regarding the collection of state and local sales taxes,” NGA Executive Director Dan Crippen said in a statement Monday.
In the Senate, meanwhile, there is no plan to take up the House bill banning taxes on Internet access. A current version of the law is set to expire on October 1.
Senate Finance Committee ranking member Ron Wyden, D-Ore., has re-introduced a companion bill to the House’s Permanent Internet Tax Freedom Act, while a bipartisan group of senators has introduced the Marketplace Fairness Act, which allows states to require sales tax collection.
A top Senate aide told the Washington Examiner “it would not be surprising at all” if the Senate combined the two measures into one bill, as they did last year.
“They are trying to attach a controversial bill to one that is universally accepted and supported,” the aide said.
