WSJ: Internet Freedom’s Expiration Date

Internet Freedom’s Expiration Date (Wall Street Journal, May 13, 2014):

Sales taxers are holding hostage the renewal of a rare bipartisan success.

The idea of taxing email is no more popular today than when President Bill Clinton signed the Internet Tax Freedom Act into law. But a dedicated congressional minority now wants to allow states and localities to tax emailunless these governments are given new powers to collect sales taxes on e-commerce.

On Nov. 1—three days before Election Day—the Internet Tax Freedom Act is due to expire. In place since 1998 and renewed three times, it wisely prohibits taxes that discriminate against the Internet. State and local governments can’t impose burdens online that don’t exist offline. And multiple jurisdictions can’t tax the same online transaction—a critical consumer protection in a country with more than 9,600 taxing authorities. The law also bans email taxes and new taxes on Internet access services.

Originally authored by former GOP Rep. Chris Cox and Sen. Ron Wyden (D., Ore.), the law has attracted large bipartisan majorities every time it’s been up for a vote in either house. That’s because the law has allowed the Internet to grow into an engine of interstate and international commerce.But in a few months customers may begin receiving notices from their Internet providers that new taxes are on the way. Even though nearly everyone in Congress opposes slapping all of America’s heavy traditional telephone taxes on Internet access, a renewal of this successful policy is being held hostage by lobbyists for giant retailers.

They’ve persuaded Democrats like Sen. Dick Durbin (D., Ill.) and even self-styled limited-government advocate Rep. Jason Chaffetz (R., Utah) that an extension of the Internet Tax Freedom Act should be paired with more authority for those 9,600 governments over e-commerce. Unless states and localities are granted new powers to reach outside their borders to force collection of sales taxes on goods purchased online, the plan is to punish all American consumers with new taxes on communication.

Mr. Chaffetz is candid in suggesting the larger moratorium extension won’t pass without a new online sales tax. Mr. Durbin’s office denies he’s among the hostage takers, saying that while he has considered the Internet Tax Freedom Act as a vehicle to increase sales tax collections, “Senator Durbin has not said or implied that he would hold up any piece of legislation” in order to achieve his goal. If that’s true, he should support an immediate vote on extending the ban on email taxes.

Since the biggest retailers already collect sales taxes on purchases both online and off, they want to impose a greater tax burden on their smaller competitors. The 1992 Supreme Court decision Quill v. North Dakota found that it would be too great a burden to force a merchant to collect taxes in jurisdictions where it has no physical presence. But the retailers and their allies in state government have pushed hard to run around Quill by rewriting the rules of interstate commerce.

Senators voted last year for such a rewrite when they approved the Marketplace Fairness Act, which would force Web merchants to collect for all of America’s taxing authorities. But some Senators have had second thoughts. After lawmakers approved the plan, the bill’s author, Sen. Mike Enzi (R., Wyo.), couldn’t say exactly how many governments would gain new authority to audit online merchants. A last-minute change in the bill, courtesy of Majority Leader Harry Reid, exposed Web retailers to harassment not just from state and local governments but “any tribal organization” as well. That could mean close to 600 additional governments.

Even if one favors additional tax collections on e-commerce—which most Americans do not—why should this controversial idea be used to destroy a successful policy on which most Americans agree?

Congress should make the Internet Tax Freedom Act permanent. And then during the August congressional recess, lawmakers can go back to pondering how to rewrite sales tax laws without crushing small merchants and consumers.

 

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