An interesting debate is playing out in our nation’s capital. The House of Representatives recently passed an extension of the Internet Tax Freedom Act. The legislation prohibits federal, state or local governments from taxing Internet access. Congress first passed the Internet Tax Freedom Act in 1998. Renewing or perhaps permanently banning taxes on Internet access is a smart idea. Well, things aren’t as easy as they seem and to understand why we’ll have to revisit the currently stalled Marketplace Fairness Act.
The Marketplace Fairness Act
As you may remember from our previous blog posts, the Marketplace Fairness Act would require most online vendors to collect sales tax. Currently, a company only has to charge sales tax if they have nexus in a particular state. The act would theoretically level the playing field between online retailers and traditional brick and mortar operations. Proponents also like the bill because it would bring more money into local coffers. But many of us, Miles Consulting Group included, think it’s not that simple, and that the Marketplace Fairness Act as proposed may create more problems than it solves.
A Tale of Two Acts
Here’s where things get tricky. The Marketplace Fairness Act faces an uphill battle in the Republican controlled House, which is part of the reason it’s currently stalled. The Internet Tax Freedom Act is now in the Senate and many believe it will be used as a bargaining chip. This is an election year and no incumbent wants to be seen letting a tax exemption expire that benefits his or her constituents. A tax on Internet connections would no doubt be passed along to consumers in the form of higher prices.
On the other hand, the Marketplace Fairness Act extends the realm of sales tax – you can probably see where this is going. Tax, of course, , is a dirty word in politics. This kind of narrow thinking will only impede progress and ensure nothing gets done. Most people would agree that our tax code is in need of reform. The Internet Tax Freedom Act and the Marketplace Freedom Act are useful pieces of legislation that should be considered individually.
In my opinion, the Senate should not hold the Internet Tax Freedom Act hostage while the House continues to mull over the Marketplace Fairness Act. The former is more of a “slam dunk” while the latter requires more discussion. Stay tuned for further updates on both pieces of legislation. We’ll be following them!
