Your Internet access will soon be forever free from government taxes — unless the Senate gets in the way.
Boosters of tax-free Internet connections barely had time to celebrate a major win in the House this week before a threat to its survival emerged overnight in the upper chamber.
On Tuesday, the House passed a bill by voice vote that would make permanent an expiring ban on federal, state, and local taxation of Internet access. The popular measure is primed and ready for consideration in the Senate, where a similar bill sponsored by Sen. Ron Wyden has tallied more than 50 cosponsors.
But just hours after the House bill passed, a group of bipartisan senators introduced a new bill linking the tax ban to a more complicated and controversial push to strengthen the power of states to tax online purchases of items like books, furniture, and electronics to help close budget shortfalls.
The swift maneuver amounts to a last-ditch effort to revive the stalled online-sales-tax legislation, which passed the Senate last year but has gained little traction since. But it also cleaves the coalition that supports a moratorium on taxing Internet access — and it could prove a burdensome hurdle that stalls any extension from reaching the president’s desk before the ban expires later this year.
The Marketplace and Internet Tax Fairness Act, introduced by Republican Sen. Michael Enzi, Senate Majority Whip Sen. Dick Durbin, and a handful of others, would allow states to levy a sales tax on online purchases from out-of-state retailers. Current law dictates that states cannot enforce a sales tax on online merchandise bought from a company that does not have a physical location within the same state.
In addition, the bill would extend for 10 years the moratorium on taxing Internet access, which is set to expire Nov. 1. Unlike the House offering, it would not make the tax ban permanent.
The plan to broaden states’ ability to tax online sales has been percolating in Congress for years, and it has earned influential backing from traditional retailers as well as the online behemoth Amazon. Other online retailers such as eBay and a number of antitax groups oppose the measure.
But despite the Senate action last year, the House has yet to act on the matter. The Permanent Internet Tax Freedom Act that passed the lower chamber on Tuesday was viewed as a possible piggyback ride for an online-sales-tax amendment. But House Judiciary Committee Chairman Bob Goodlatte, the bill’s sponsor, has resisted attempts to tack it on, despite a hearing in March examining the issue.
Adding pressure to Enzi and Durbin’s effort: Making the tax ban on Internet access permanent, as the House bill does, means lawmakers might not have another chance to leverage the issue to promote an online-sales tax.
But indications are that Goodlatte and House leadership feel they have a strong hand, bolstered by the looming deadline on the access-tax moratorium. Following the introduction of the Senate bill, Goodlatte reiterated in a statement his hope that the upper chamber would pass a clean version of his permanent ban before the moratorium expires Nov. 1.
Wyden, the champion of the Senate’s tax-access ban, used a statement applauding the House’s action to take a forceful swipe at any effort to pair it with an online-sales-tax measure.
“It is so important to reject approaches like the Marketplace Fairness Act that passed the Senate last year, which would fundamentally discriminate against states that do not levy a sales tax and against U.S. companies versus their foreign competitors,” the Oregon Democrat said. “It would amount to a body blow to online retailers and services across the country.”
Wyden chairs the Senate Finance Committee, which holds jurisdiction over online tax issues. Opponents of online-sales-tax legislation expect Wyden and Goodlatte to work in tandem to block an amendment to their clean tax-access measure.
Retailers and others lobbying hard for the online-sales tax still believe there is a way forward, however, and they insist the legislation is a “near cousin” of the push to ban Internet-access taxes. And having Durbin — the second-most powerful Democrat in the Senate — on their side provides some necessary muscle that could help the measure overcome opposition from Wyden and the House.
“I’m not that concerned about this ending in a stalemate,” said David French, senior vice president of government affairs at the National Retail Federation. “I think there’s a path forward, and our Senate sponsors are committed to getting this done.”
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