Pass the Internet Tax Moratorium and Oppose Internet Sales Tax

Oct 21, 2014

Americans from all sectors of society use the Internet for social and economic reasons. Many use it as a means of climbing the economic ladder. That’s why every American has a vested interest in the debate in Washington over the Internet Tax Freedom Act (ITFA) and the Internet sales tax (IST).

ITFA, a moratorium on discriminatory state and local taxes on the Internet (i.e. “email taxes”), is something Americans on both sides of the aisle and opposite ends of the political spectrum support.

Some lawmakers are trying to hold the moratorium hostage until they can attach to it a very unpopular tax on Internet sales, the so-called Marketplace Fairness Act (MFA). The MFA would allow states to require out-of-state retailers to collect and remit their sales taxes, regardless of whether they have a physical presence in the state.

Before ITFA’s passage in 1998, 10 states had imposed taxes on Internet usage. Over the past 16 years, Congress has renewed the moratorium four times, most recently in 2007, which means the moratorium is constantly under threat of not being continued should revenue-hungry lawmakers get their way. This year, the House passed a bill by unanimous voice vote extending the moratorium indefinitely, but the Senate failed to do the same, instead extending ITFA only until Dec. 11, 2014.

Tying a critical policy like ITFA to a terrible policy like an Internet sales tax bill is a massive disservice to the people. Political maneuvering to force bad policy on the American people is reprehensible.

That is especially true during a lame duck session of Congress, which is when some lawmakers intend to pull this stunt.

Conservative and liberal economists agree and have produced data demonstrating the economic harm that would result from more state Internet taxes. Businesses would face myriad new cumbersome burdens if the moratorium were to expire. And additional Internet taxes would harm the most vulnerable among us, who have to make tough decisions about how to use their discretionary spending. As popular as the moratorium is, the idea of an Internet sales tax bill is just as unpopular. Only 35 percent of Americans support it.

The IST is particularly onerous for small business owners in Delaware who sell their products on the Internet, because the state doesn’t have a sales tax. Business owners may have chosen to base their business here for that very reason. If enacted, the MFA would force Delaware-based retailers to navigate the tax policies of some 10,000 jurisdictions and 46 state tax authorities. Under the MFA, small businesses in Delaware could face audits from overzealous state and local governments in California, Illinois and New York.

The MFA is simply a political ploy to line the pockets of revenue hungry state governments that don’t want to cut spending. Worse, major retailers are playing politics to drive out competition from small, Internet-based competitors. Many big businesses have a physical nexus in several states and already collect remit sales taxes for online sales specifically because of their physical nexus in a variety of states. They are working to convince small brick-and-mortar companies that they are on the same team – a team that wants to ensure small, online businesses have to bear greater tax burdens.

Congress should not attach a terrible policy like the Internet sales tax to a vastly popular idea like the Internet tax moratorium. The federal government should not impose discriminatory taxes on Internet usage, which is such an integral part of a thriving economy and a means of upward mobility for many Americans. Doing so would only be made worse by combining it with the Internet sales tax to burden Internet-based entrepreneurs in an unprecedented way.

This piece was originally published in the Milford Beacon on October 15, 2014.