Coalition Tells Congress to Keep the Internet Tax-Free

Today, the Competitive Enterprise Institute joined 44 organizations in signing a coalition letter urging Congress to extend and make permanent the Internet Tax Freedom Act (ITFA). The law, originally enacted in 1998 as a temporary measure barring states and their political subdivisions from imposing “[t]axes on Internet access” and “[m]ultiple or discriminatory taxes on electronic commerce.” What this means is that if you pay for home Internet service, your home state can’t impose taxes on the Internet portion of your monthly bill.

In part because the Internet was still quite new to the public in 1998, ITFA was originally scheduled to sunset in 2001. Fortunately, Congress extended ITFA in 2001, 2004, 2007, and 2014. Although  ITFA allows states to tax online purchases—an option most states have exercised—but it bars states from imposing a higher tax rate on goods purchased online than on comparable goods purchased through other means.  And ITFA bars states from imposing taxes on Internet access, except for Internet access taxes already in force at the time of ITFA’s enactment.

If ITFA were to expire, many states will likely enact Internet access taxes—which could cost U.S. consumers $14.7 billion annually if existing state and local telecommunications taxes are applied to Internet access.  States might also respond to ITFA’s expiration by imposing additional sales taxes on goods and services that their residents purchase online. Fortunately, Congress can prevent both of these harmful outcomes by passing a permanent Internet Tax Freedom Act, which would permanently eliminate the political battle that occurs every few years when ITFA is about to expire. In particular, Congress should move to pass the portion of the Trade Facilitation and Trade Enforcement Act, H.R. 644, that makes ITFA permanent.