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Tag: Internet Tax

  • Rep. Bob Goodlatte Introduces Internet Tax Legislation In House

    Back in August, Sens. Ron Wyden and John Thune introduced legislation that would permanently extend the Internet Tax Freedom Act of 1998. The legislation prevents state and local governments from taxing Internet services. Now similar legislation has finally been introduced in the House.

    The Hill reports that House Judiciary Committee Chairman Bob Goodlatte and Rep. Anna Eshoo have introduced the Permanent Internet Tax Freedom Act in to the House. The bill, much like the Senate’s legislation, would permanently prevent state and local governments from taxing Internet services.

    In a statement released to the public, Rep. Goodlatte says that removing taxation from Internet access ensures that more people can access the invaluable resource:

    “The Permanent Internet Tax Freedom Act ensures that Americans can continue to access the Internet tax-free. In this increasingly digital age, Americans rely on access to the Internet to apply for employment, to seek and share innovative ideas, to keep governments accountable, to run small businesses, and to communicate with their families and friends. This legislation will help ensure more Americans have access to this tremendous medium by reducing cost barriers.”

    As for Rep. Eshoo, she says that the legislation will protect a resource that’s feeds billions of dollars into the economy:

    “Access to the Internet has transformed the lives of millions of Americans, businesses and schools. It has driven us to new heights of innovation and led to billions of dollars in economic growth. Unfortunately, consumers will be faced with new state and local taxes to get online unless Congress permanently extends a ban on Internet access taxation. No one should pay a tax just to access the Internet, and the Permanent Internet Tax Freedom Act rightfully ensures just that. Its passage would be marked progress toward ensuring the Internet remains universally accessible and encourage its use by all.”

    The House and Senate bill not only prevent state and local governments from taxing Internet services, but it would also ban multiple and discriminatory taxes on digital items. This is especially important as it would protect consumers from having to pay email taxes or byte taxes. Can you imagine having to pay a tax for every byte of data that’s transferred to your home? Some Internet users already have to deal with unfair data usage caps, and adding taxes onto that wouldn’t help matters at all.

    It should be noted that the Internet Tax Freedom Act has no governance over the sales tax of online items. For that, you’re going to want to take a look at the Marketplace Fairness Act. Some would argue that its effects would be just as detrimental to consumers and small businesses that rely on the Internet to make a living.

    [Image: Congressman Bob Goodlatte/Facebook]

  • Should Internet Access Remain Tax Free?

    Should Internet Access Remain Tax Free?

    You probably pay a lot for Internet, but at least you don’t have to pay taxes on your service with each monthly bill. That may all change next year, and two senators want to stop that from happening.

    The Hill reports that Sens. Ron Wyden and John Thune introduced the Internet Tax Freedom Forever Act into the Senate on Thursday. The bill would prevent state and local governments from imposing taxes on Internet service. In other words, the taxes that you see on your monthly utility bills would not appear on your Internet bills.

    Do you think the Internet should remain tax free? Is there any benefit to taxing Internet service? Let us know in the comments.

    The Internet Tax Freedom Act is nothing new. In fact, the bill was originally authored by Wyden all the way back in 1998. It barred the above federal, state and local taxes on Internet access, but it also barred said governments from imposing such things as a bit tax or a bandwidth tax. Such taxes were bad in 1998, and would be absolutely disastrous in today’s age of constant bandwidth consumption.

    The government has three times now recognized that the Internet should be kept tax exempt. The most recent extension – the Internet Tax Freedom Amendment Act of 2007 – will expire on November 1, 2014. Wyden and friends hope to place a permanent ban on Internet service taxes by that time.

    In defending the permanent tax exemption, Wyden says that it’s needed to facilitate the innovation and job growth that Internet brings:

    “As the Internet Tax Freedom Act enabled and promoted Internet access and adoption across America, the Internet became a platform to facilitate global commerce, sparking nothing short of an economic revolution. It facilitated the development and growth of the digital economy and has created new industries and the good-paying jobs that come along with them. “Consumers, entrepreneurs, and innovators can breathe easy knowing that a permanent extension of ITFA is on its way.”

    Wyden’s co-sponsor, Thune, said that the legislation would even help promote Internet access in rural areas that are still sorely lacking broadband Internet access:

    “Use of Internet technology is one of the key drivers of economic growth, innovation, and information in our 21st century economy. Keeping the Internet accessible to consumers encourages innovation and investment in our global economy. Our legislation would make permanent the prohibition on Internet access taxes, would prevent multiple and discriminatory taxes on Internet commerce, and would promote Internet access throughout the country, which is especially important in rural areas of South Dakota.”

    Interestingly enough, Wyden and Thune’s bill would go above and beyond what the current Internet Tax Freedom Act does. It would ban multiple and discriminatory taxes from being applied to digital items. The bill currently bans multiple taxes on the sale of digital goods, but there’s no law against discriminatory taxes on digital goods. If passed, you would no longer have to pay any taxes when buying digital songs, movies and apps.

    As you would expect, the bill has already received tons of support from the wireless and Internet provider industries. In fact, CTIA President and CEO Steve Largent said that a permanent moratorium on Internet taxes is needed to preserve the current “affordability” of wireless and wired Internet:

    “An affordable internet is vital to millions of American consumers and businesses, and Senators Wyden and Thune remain at the forefront of preserving this critical access to opportunity and information by introducing the Internet Tax Freedom Forever Act of 2013. Wireless broadband was in its infancy when Congress passed the Internet Tax Freedom Act fifteen years ago and put the first temporary tax moratorium in place. Today, millions of Americans rely on wireless technology for myriad purposes in their everyday lives, and it’s more important than ever to create a reasonable and permanent tax process on internet access. CTIA and its members look forward to working with Senators Wyden and Thune on behalf of all American internet users to ensure Congress will act on this important legislation before the current moratorium expires next year.”

    In the wake of the bill being announced, a number of trade groups and companies have joined forces to create the Internet Tax Freedom Act Coalition. The group is made of the usual suspects, including Amazon.com, AT&T, Comcast, Time Warner Cable, T-Mobile, Verizon and others. All of these companies have plenty to gain with the passage of this bill, and it’s unsurprising to see them voice support for it.

    Unlike some issues that telecoms and wireless carriers push for, consumers would actually benefit from the passage of this bill as well. We may be paying a lot for Internet and wireless service, but we would paying a lot more if stuff like the bandwidth tax was enacted. The ban of multiple and discriminatory taxes will probably be a point of contention with traditional retailers, but I think everybody can agree that Internet access taxes are no good.

    Do you support the permanent extension of the Internet Tax Freedom Act? Or should state and local governments be allowed to tax the Internet? Let us know in the comments.

  • Should The Senate Pass Online Sales Tax Legislation? [Updated]

    Should The Senate Pass Online Sales Tax Legislation? [Updated]

    Update: It passed.

    Currently in the U.S., state governments are only obligated to collect sales taxes from online retailers that are based in their own states. If an online sales tax bill makes it to law, states could collect from online retailers that don’t reside in their state.

    Should online retailers have to pay taxes to states where they don’t reside? Let us know what you think in the comments.

    There’s a good chance you’ve heard of the Marketplace Fairness Act (S.336), before. The bill aims to ensure that states receive taxes that they’ve been otherwise missing out on. A similar proposal is up for vote in the Senate this week thanks to an amendment to a Democratic budget resolution from Senators Mike Enzi and Dick Durbin (pictured), who sponsored the bill.

    Opponents are slamming the Senators for trying to “sneak” the legislation through. The Hill reports:

    Phil Bond, the executive director of the WE R HERE coalition, accused backers of online sales tax measures of trying to “sneak through” their legislation outside regular congressional order.

    “There are good reasons this policy hasn’t been considered in the US Senate for over a decade: Taxpayers don’t like it, it turns the Internet into a tax collection platform, it allows state tax collectors to exercise authority far beyond their boundaries and it will put thousands of small businesses out of business,” Bond, a top Commerce Department official under George W. Bush, said in a statement.

    The official summary of the Marketplace Fairness Act says:

    The Marketplace Fairness Act grants states the authority to compel online and catalog retailers (“remote sellers”), no matter where they are located, to collect sales tax at the time of a transaction – exactly like local retailers are already required to do. However, there is a caveat: States are only granted this authority after they have simplified their sales tax laws.

    Simplification is required because of two Supreme Court rulings (Bellas Hess and Quill, described below) cite concern that collecting sales tax for multiple states would be too difficult.

    The Marketplace Fairness Act requires that states must simplify their sales tax laws in order to ease those concerns and make multistate sales tax collection easy. Specifically, states seeking collection authority have two options for simplifying their sales tax laws.

    Under the Marketplace Fairness Act, states can join others that have already adopted “simplification measures” of the Streamlined Sales and Use Tax Agreement (SSUTA) or they can meet five mandates listed in the bill. States would have to agree to:

    • Notify retailers in advance of any rate changes within the state
    • Designate a single state organization to handle sales tax registrations, filings, and audits
    • Establish a uniform sales tax base for use throughout the state
    • Use destination sourcing to determine sales tax rates for out-of-state purchases (a purchase made by a consumer in California from a retailer in Ohio is taxed at the California rate, and the sales tax collected is remitted to California to fund projects and services there)
    • Provide free software for managing sales tax compliance, and hold retailers harmless for any errors that result from relying on state-provided systems and data

    You can take a look at the bill here. Hundreds of national trade associations, state and local trade associations and businesses support the bill. These are listed here. They include Amazon, Autozone, Barnes and Noble, Bed, Bath, & Beyond, Best Buy, Buy.com, Foot Locker, Gap, Home Depot, Kroger, Lowes, Meijer, J.C. Penney, Safeway, Sears, Petsmart, and Walmart, to name a few.

    The bill’s site only lists ten opponents, including: eBay, American Catalog Mailers Assocation, Americans For Prosperity, Campaign for Liberty, Center for Freedom and Prosperity, Computer & Communications Industry Association, Competitive Enterprise Institute, Direct Marketing Association, Freedomwworks, Heartland Institute, Heritage Foundation, National Taxpayers Union, NetChoice, R Street, TechNet, and We R Here Coalition.

    AT&T, Council on State Taxation, National Cable and Telecommunications Association, National Federation of Independent Business, and Verizon are listed as neutral or undecided.

    The main difference between the Marketplace Fairness Act, and what is coming up for vote this week, is that the new proposal doesn’t include the mandatory simplification, and is non-binding, as CNET’s chief political correspondent Declan McCullagh explains.

    “It appears to be intended as a clever political hack: secure plenty of votes on a non-binding Internet tax amendment, then use those vote totals to argue there’s sufficient support for S.336 when it’s up for a binding vote later,” he says, before going to quote eBay’s senior director of federal government regulations and global public policy, Brian Bieron:

    “The strategy of the bill’s supporters is to offer this general amendment and then claim that all the senators that vote for it support the bill. That is not just a stretch, it is not accurate. But the game plan is to rack up a sizable vote and then make the claim the bill itself should jump over the Finance Committee and go right to the floor.”

    Hence the “sneaking” accusations.

    Some supporters of the legislation think it’s really just a matter of when, rather than a matter of if, and whatever happens with this week’s vote could have a significant bearing on that.

    Either way, brick-and-mortars have ramped up their lobbying for online sales tax, but opponents claim it’s bad for consumers and for small businesses.

    Do you think the proposed online sales tax legislation is bad for small businesses? Consumers? Let us know in the comments.

  • Senators Seek To Extend The Internet Tax Freedom Act Indefinitely

    Unless you’re buying something online, the Internet is a tax free service. That all might change in 2014, however, if a bill barring the government from taxing the Internet isn’t extended. Fortunately, two senators are already on the case with a new permanent extension.

    The Hill reports that Senators Kelly Ayotte and Dean Heller have introduced an extension to 1998’s Internet Tax Freedom Act. The law last saw an expansion in 2007 that would keep the Internet tax free until 2014. The law being proposed by Ayotte and Heller would make the extension permanent. The bill would only block taxes like bandwidth or email taxes. It does not have an effect on online sales tax as that’s an entirely separate issue.

    In a statement published on her Web site, Ayotte said extending tax exemptions for Internet access will keep job growth alive:

    “E-commerce is thriving largely because the Internet is free from burdensome tax restrictions. Unfortunately, tax collectors see it as a new revenue source, and they must be stopped. This legislation will provide certainty to the marketplace, helping the Internet continue to be a driving force for jobs and growth.”

    Heller also chimed in by saying the permanent tax exemption would preserve the Internet “as a tool for education and innovation:”

    “Nevadans and every American should be able to access the Internet without penalties from the federal government. The Internet Tax Freedom Act will ensure a long-standing federal policy that prevents the government from raising taxes, and preserves the Internet as a tool for education and innovation. I am pleased to work with Senator Ayotte on this issue and encourage Congress to work together to extend this act permanently.”

    I’m sure there will be some disagreement over how far Internet taxation can go, and some may argue that a permanent extension would not allow them to revisit the issue in the future if Internet taxation becomes more acceptable. That being said, an extension, preferably longer than the previous seven year extension, would only be a good thing. The Internet’s phenomenal growth can only be attributed to its lack of regulation, and taxing people for just using Internet services would seriously cut down on its continued growth.

    Besides, I don’t think any of us want to pay more for Internet access than we already do.

  • U.N. Considering Global Internet Tax for U.S.-Based Websites

    Should some of the largest online content providers have to pay up in order to continue to reach the global market? The United Nations thinks so, according to some leaked documents obtained by WCITLeaks.org, and such a tax will be up for debate this December when the agency’s International Telecommunications Union convenes for the World Conference on International Telecommunications in Dubai.

    The tax would have adverse effects on companies such as Google, Apple, and Facebook that have thrived off of their access to the rest of the world. Levying a tax on these companies so that they can continue to maintain a presence throughout the world has raised concern among industry observers about how the ITU’s internet tax would diminish the communication outlets around the world and hamper the openness of the internet, leaving developing countries in isolation.

    On page 36, Section CWG/54/6.14 of the draft of the document dated June 6, 2012, the proposed regulation states, “Countries are free to levy fiscal taxes on international telecommunication services in accordance with their national laws.” Later, in CWG/54/6/6.16, the document continues:

    National authorities are free to impose taxes on all telecommunications traffic, whether incoming or outgoing. However, such taxes should be reasonable and the proceeds should be directed where possible at the development of the industry. Regarding double taxation, Member States are encouraged to cooperate within the framework of bilateral, juridical double taxation treaties under which taxation arrangements are pre-determined by the terms of the treaty so as to protect against the risk of double taxation and avoidance or evasion of tax liability.

    The two policy analysts behind WCITLeaks spoke to CNET about the dangers of the ITU’s proposed tax, suggesting that the attempt to tax U.S.-based internet companies is likely born of greedy ambitions but carries with it the collateral threat to free speech.

    Eli Dourado, a research fellow who founded WCITLeaks along with Jerry Brito, told CNET this afternoon that the documents show that Internet taxes represent “an attractive revenue stream for many governments, but it probably is not in the interest of their people, since it would increase global isolation.”

    Dourado hopes to continue posting internal ITU documents, and is asking for more submissions. “We hope that shedding some light on them will help people understand what’s at stake,” he says.

    The tax proposal comes by way of the European Telecommunications Network Operators Association, a lobbyist group that represents several companies throughout different countries that would love to see a the tax proposal ratified.

    Last week, Vint Cerf, one of the architects of the internet, testified before the U.S. Congress about his growing concern about the U.N.’s ambitions to regulate the internet and the organization’s vulnerability to the influences of countries that aren’t so much in favor of having an open internet, like China, Russia, India, and others. Deciding to tax companies that have championed the free exchange of information on the internet would be a covert yet decisive victory for those interests that wish to undermine web’s openness.

  • What is the Right Solution for Internet Tax?

    The Internet sales tax issue has been debated for a number of years, but the issue grew to a new level of intensity after the state of California signed into law a bill that required all online retailing sites to pay taxes on their affiliate advertising. This, of course, sparked a big dispute since many online retailers such as Amazon cut off their affiliate programs in the state.

    As a result, a lot of the affiliates in the state lost most, if not all, of their revenue. Nick Loper, who was among the affiliate victims, spoke to WebProNews back in August and told us that he lost 70 percent of his revenue almost immediately after the law went into effect. He ended up moving to Nevada and starting completely over.

    The motive for California’s law was driven primarily by its struggling financial situation. Because many other states are facing similar scenarios with large budget deficits, they too are contemplating related actions. It’s understandable why states want to impose these taxes, but does that make it right?

    Can these interstate tax propositions actually solve the tax problem? What do you think?

    Adam Thierer, a senior research fellow with the Technology Policy Project at the Mercatus Center at George Mason University, doesn’t think that they would. He co-wrote a report with Veronique de Rugy on this topic, and as he explained to WebProNews, the tax issue is very complex and far-reaching.

    “The debate about Internet taxation is really an interesting debate, because the sales tax only being a state and local tax is not something that can be easily applied to something that’s interstate in nature, which the Internet and Internet sales clearly are,” he said.

    Even before Internet taxes became an issue, states have wanted to impose taxes on interstate companies that provide catalog and mail order services. However, they have not been able to do so because of their constitutional restraints. According to Theirer, the Supreme Court has provided limitations in this area because the states can’t put “discriminatory or unfair burdens” on companies that they don’t have any authority over.

    Congress is now trying to get these limitations reversed with new legislation. In August, the “Main Street Fairness Act” was introduced to the Senate. It, in essence, calls for a set of federal guidelines that would dictate how states could collect sales taxes from online retailers.

    A second bill, called the “Marketplace Equity Act of 2011,” and was introduced to the House last week. It is similar to the one introduced in the Senate but is a little different since it would give states the authority to require retailers, both on and offline, to collect sales taxes even when customers are located in states where the companies have no physical presence.

    “What both these measures try to do is find a way to, essentially, authorize a state-based system of taxation for the Internet,” said Thierer.

    “The reason, again, that the courts have not thus far allowed it is because, really, the complexity question. It’s not just that the states don’t have authority over interstate vendors; it’s that if they went to actually impose these taxes, it would create a huge burden on interstate sales and trade.”

    States are aware that tax systems are complex, and many of them have joined the Streamlined Sales Tax Governing Board to simplify the processes. They are working to not only explain rates, but they are also working to clarify definitions such as the difference between a cookie and candy bar. This might seem of minimal value on the surface, but as Thierer explained to us, each of these items is taxed very differently.

    He went on to say that, even if the systems were clarified, there would still be issues with this approach. He told us that states want to tax one another’s imports instead of taxing their own exports, which is a process that he calls a “tax cartel.”

    “The wrong answer, in my opinion, is to essentially tax everybody up to a higher level,” said Thierer. “The better approach would probably be to tax downward and find a way to have a more competitive tax arrangement, so that we don’t set this collusionary approach that some states want to use.”

    “I think that that would create a troubling disincentive to actually seeing more tax competition,” he added.

    Thierer also pointed out his frustration with Amazon being at the center of this debate, saying that he was “very troubled” by it. He not only thinks that Amazon is pulling the spotlight away from other online retailers, but he is also disturbed that it is making deals with politicians in order to eliminate its tax own burden. The online retailer has been negotiating with states to avoid or delay paying taxes in exchange for investment and jobs in those states.

    “In theory, that sounds great,” said Theirer. “I really do wonder about Amazon’s ability to deliver on it, but at the end of the day, this is really just politics, and it’s not the kind of solution that is ultimately going to serve the broader marketplace or consumers.”

    Theirer believes that there is a better approach to the tax issue than the approach that both the states and Amazon are taking. In the report, Theirer and de Rugy propose 3 potential solutions to the tax problem. One option would be to abolish sales taxes entirely. For this to work, states would have to rely on income, property, and various other taxes.

    On the other extreme, a second option would be to have a nationwide sales tax that would give states a certain portion of the income. Thierer, however, doesn’t think either of these methods is ideal. Instead, he is advocating an “origin-based sourcing rule” that would apply the structure of offline sales taxes to the Internet.

    As he explained, it’s the idea of taxing consumers at the origin of sale, not at the destination, which is what the states want to do.

    “The states and localities want to have a destination-based system where they try to figure out where everybody’s going to consume their online goods… that’s what creates the complexity and the costs associated with the plan that they desire,” said Thierer.

    On the other hand, he believes his idea would, “create tax competition eliminate the constitutional tax headaches associated with the states’ current plan, and it would make sure that we don’t have a confusing, complicated array of rates and systems for interstate vendors to contend.”

    It’s clear that the Internet tax issue is complex, but the big question at the end of the day is – do any of these approaches actually provide a solution to the problem? If so, would you be more apt to follow states’ proposal or Thierer’s proposal?

    Do you have ideas for what should be done about Internet-related taxes? Let us know in the comments.