The House Just Voted to Ban Internet Taxes — Forever

With bipartisan support, the lower chamber passed a bill to keep Web access permanently off-limits from government taxes.

Computer users are pictured in an internet cafe in Istanbul on September 3, 2009 where governmental censorship has banned websites including the video sharing site YouTube. Prohibited since 2007 YouTube remains in the top five most visited internet sites in Turkey. AFP PHOTO / UGUR CAN (Photo credit should read UGUR CAN/AFP/Getty Images)
National Journal
Dustin Volz
July 15, 2014, 9:35 a.m.

In­ter­net ac­cess is free of gov­ern­ment taxes — and it now looks like it might stay that way for a long time.

The House passed a bill on voice vote Tues­day that would for the first time make per­man­ent a ban on fed­er­al, state, and loc­al tax­a­tion of In­ter­net ac­cess. The meas­ure now heads to the Sen­ate, where a sim­il­ar bill sponsored by Sen. Ron Wyden has racked up more than 50 co­spon­sors.

The Per­man­ent In­ter­net Tax Free­dom Act is an at­tempt by Con­gress to defin­it­ively bar gov­ern­ment from tax­ing users for In­ter­net ac­cess or levy­ing dis­crim­in­at­ory In­ter­net-spe­cif­ic taxes on things like email or band­width. It is sep­ar­ate from a con­tro­ver­sial ef­fort brew­ing in Wash­ing­ton to cre­ate a tax on In­ter­net sales, which has drawn siz­able op­pos­i­tion from on­line re­tail­ers like eBay.

In a his­tor­ic­ally un­pro­duct­ive Con­gress, the bill rep­res­ents one of the only pieces of sub­stant­ive le­gis­la­tion that stands a chance of land­ing on the pres­id­ent’s desk and signed in­to law this year.

A ban on tax­ing In­ter­net ac­cess has been in place since Pres­id­ent Clin­ton signed a bill in­to law in 1998, en­acted in part to pro­tect the growth of the then-nas­cent tech­no­logy. The meas­ure has been re­newed three times, most re­cently in 2007, and is set to ex­pire Nov. 1.

But the le­gis­la­tion en­dorsed by the House on Tues­day would do more than simply make that tax ban per­man­ent. It also would also end taxes in sev­en states — Hawaii, New Mex­ico, North Dakota, Ohio, South Dakota, Texas, and Wis­con­sin — that were already on the books be­fore the 1998 law and al­lowed to con­tin­ue.

“This le­gis­la­tion pre­vents a sur­prise tax hike on Amer­ic­ans’ crit­ic­al ser­vices this fall,” said Rep. Bob Good­latte, chair­man of the House Ju­di­ciary Com­mit­tee and the bill’s chief spon­sor. “It also main­tains un­fettered ac­cess to one of the most unique gate­ways to know­ledge and en­gine of self-im­prove­ment in all of hu­man his­tory.”

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Al­though backed by a wide swath of In­ter­net free­dom and an­ti­tax co­ali­tions, the bill is not without its de­tract­ors. Last week, the Cen­ter on Budget and Policy Pri­or­it­ies re­leased a re­port harshly in­dict­ing the “harm­ful” le­gis­la­tion, which it cal­cu­lated would cost states up to $7 bil­lion in po­ten­tial an­nu­al rev­en­ue. The sev­en states that cur­rently have taxes on In­ter­net ac­cess would col­lect­ively lose an es­tim­ated $500 mil­lion in an­nu­al rev­en­ue, the re­port ad­ded.

Some Demo­crats have urged for an ad­op­tion of an­oth­er tem­por­ary ex­ten­sion of the tax morator­i­um. Dur­ing de­bate last month in the Ju­di­ciary Com­mit­tee, Rep. John Con­yers, the pan­el’s top Demo­crat, said the In­ter­net no longer needs tax pro­tec­tions to grow, as it is “now a pros­per­ous sec­tor of the glob­al eco­nomy.”

“Stud­ies show that there is no dif­fer­ence in the rates of house­hold In­ter­net ac­cess between states that tax In­ter­net ac­cess and those states that do not tax In­ter­net ac­cess,” Con­yers ad­ded. “In oth­er words, there is no evid­ence that mak­ing [this bill] per­man­ent will en­cour­age people who do not cur­rently sub­scribed to high-speed In­ter­net ac­cess ser­vices to be­gin do­ing so.”

Oth­er Demo­crats have ar­gued that a per­man­ent tax morator­i­um in­fringes on states’ rights. Yet des­pite a num­ber of law­makers rising to the floor in op­pos­i­tion, the bill passed on a voice vote Tues­day.

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