Internet Tax Ban Extension Sets Up December Sales-Tax Fight

Keep up with the latest developments and legal issues in the telecommunications and emerging technology sectors, with exclusive access to a comprehensive collection of telecommunications law news,...

By Marc Heller

Sept. 22 — The federal ban on taxing Internet access may be extended just long enough to stage a real fight over sales taxes and e-commerce in December.

A measure to extend government operations until Dec. 11 includes an extension of the Internet Tax Freedom Act, the 1998 law that bars state and local Internet access taxes in all but a few states.

The short-term extension is virtually assured if Congress is to avoid a government shutdown at the start of the new fiscal year on Oct. 1. A so-called continuing resolution proposed Sept. 22 by Senate Appropriations Committee Chairman Thad Cochran (R-Miss.) extends the ITFA until the spending measure expires. The schedule for consideration hasn't been set.

Should Congress adopt Cochran's timeline, the next test will come in December when advocates of a more comprehensive approach to the Internet and taxes try to unite a permanent ITFA with legislation expanding states' ability to collect taxes on purchases their residents make online from retailers in other states. States would be able to compel out-of-state retailers to collect their sales tax, as long as the state that's due the tax implements certain tax simplification measures.

Captives of Congress 

Congressional staff members close to the issue told Bloomberg BNA that as long as the sales tax legislation, called the Marketplace Fairness Act (S. 698), looms, the ITFA is likely to be continually extended in short increments. The MFA has support from the National Governors Association and many lawmakers, but neither the House nor Senate leadership has endorsed it, and House Judiciary Committee Chairman Robert W. Goodlatte (R-Va.) hasn't allowed it to advance to a vote in committee.

“He's kind of kept us captive since January,” said a lobbyist pushing for the MFA, who asked that his name be withheld so he could speak frankly about the political landscape. Despite promising to negotiate a compromise measure, Goodlatte hasn't moved on the issue, the lobbyist told Bloomberg BNA.

The ITFA makes a good partner to the sales tax legislation, the lobbyist said, because of the tax ban's expiration and its popularity in Congress. The ITFA has wide support on both sides of the aisle, although views diverge on whether to continue grandfathering states that already had such taxes when the law was enacted.

Wyden: Keep It Simple 

The author of the 1998 law, Sen. Ron Wyden (D-Ore.), strongly opposes adding the MFA to the ITFA. Including a complicated and controversial measure such as the MFA with the access tax ban doesn't make sense, a spokesman, Keith Chu, told Bloomberg BNA Sept. 22.

Procedural challenges await. With an Internet sales tax bill going nowhere in the House Judiciary Committee, the only route to enactment would be to work around the textbook process for legislation, meaning committees would be bypassed and the measure tacked onto other legislation with a threat of government closure looming, for instance.

In the House, Rep. Jason Chaffetz (R-Utah) has introduced the Remote Transactions Parity Act (H.R. 2775), a variation on the Marketplace Fairness Act. The legislation has 50 co-sponsors.

To contact the reporter on this story: Marc Heller in Washington at

To contact the editor responsible for this story: Brett Ferguson at

Request Tech & Telecom on Bloomberg Law