Top Senate lawmakers think they have found a way to allow states and local governments to tax Internet purchases: Link online sales taxes to separate legislation prohibiting Internet access taxes and pass it in the post-election “lame duck” session of Congress.
The moratorium on access taxes runs out Dec. 11. A bill by Sen. Mike Enzi, R-Wyo., titled the Marketplace and Internet Tax Fairness Act, would extend the moratorium for a decade while allowing states to require online merchants to charge sales taxes.
Senate Majority Whip Dick Durbin, D-Ill., the number-two ranking Democrat, is a co-sponsor. The backers are hoping that access taxes — which would slap levies on customers for their Comcast or Verizon Internet accounts — will be the more unpopular of the two provisions and that Congress will accept the sales taxes to get rid of them.
“Both … have been debated at length and discussed in numerous committee hearings. Neither are new issues and Senator Enzi believes both should be signed into law this year,” said Enzi spokesman Daniel Head.
Head said the legislation had a strong chance to be voted on in December, which lobbyists on both sides expect as well. A Senate Democratic leadership source said they were “keeping their options open.”
Sen. Ron Wyden, D-Ore., accused the bill’s backers of “holding the Internet economy hostage” in a statement Thursday.
“I fully expect another misguided attempt to tie [the access tax issue] to an unrelated and harmful proposal that would turn small businesses into tax collectors for hundreds of different jurisdictions across the country,” Wyden said.
The House passed an extension of the access tax moratorium by voice vote in July. But key House Republicans, especially Virginia Rep. Bob Goodlatte, chairman of the Judiciary Committee, which has jurisdiction, are opposed to the sales tax provisions and have given no sign of wavering.
The lobbying has been fierce. “We are up there on the Hill talking about this every week. This is our number one priority,” said Stephen Schatz, spokesman for the National Retail Federation, a major supporter of the Enzi bill.
Any congressional gridlock creates the possibility that consumers could start seeing access taxes tacked onto their bills by the end of the year. That would create new pressure on Congress to address the issue, though which side would feel more heat from voters is not clear.
“I think they are going to come to a game of chicken here … and will come to an agreement at the eleventh hour,” said Phil Bond, executive director of We R Here, a group of online retailers opposing Enzi’s bill. Bond predicts that the Senate will blink first and compromise on a temporary extension of the access-tax ban without the sales tax provision.
Other anti-tax advocates say they are OK with letting the access tax moratorium lapse, if only briefly, because voter outcry will force Congress to reinstate it. They believe the Senate will face the bigger backlash due to the unpopularity of both taxes.
That may be wishful thinking, though. A bill prohibiting some Internet taxes but allowing others is sure to create confusion for some voters. Bond argues that the sponsors are hoping that they benefit from any “fog of war” that occurs.
Ever since Internet commerce began to grow in the late 1990s, state and local government officials have argued that they have been deprived of revenue since sales taxes are rarely applied to those purchases. The National Retail Federation says lost revenue now totals $25 billion annually.
The governments have allies in the retail industry, which says the current system gives online retailers an unfair advantage. Together, the coalition has been advocating for a way to consistently apply sales taxes to e-commerce.
That would raise costs for online consumers. Critics charge the coalition’s “level the playing field” rhetoric is less about fairness and more about raising taxes and stifling competition.
State and local government efforts to require taxes to be collected on remote sales have been stymied by a 1992 Supreme Court decision that said only Congress could require online levies because the sales were interstate commerce.
Last year, the Senate passed the Marketplace Fairness Act, a bill to “restore states’ sovereign rights to enforce state and local sales and use tax laws.” So the odds for the Enzi bill are good should it come up for a vote — at least in the Senate. Even retail industry lobbyists concede the House is a tougher nut to crack.
