Ban on Internet Access Tax Stalls in Senate

Some lawmakers want to pair the Internet Tax Freedom Act with a measure that would tax sales by online retailers.
Matthew HellerDecember 21, 2015

A bill that would enact a permanent ban on taxing access to the Internet has run into opposition in the U.S. Senate among lawmakers who favor combining it with a tax on sales by online retailers.

A permanent Internet Tax Freedom Act (ITFA) was added to a trade bill conference report earlier this month and passed by the House, but the measure has yet to receive a vote on the Senate floor.

Sen. Dick Durbin (D-Ill.) is among a group of senators who would oppose passage of a permanent ITFA renewal until Congress takes up the Marketplace Fairness Act (MFA), which would enable state governments to collect sales taxes from remote retailers with no physical presence in their state.

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“It’s really not fair to say to that store down the block that’s paying rent and paying property taxes and collecting sales tax [that] we’re going to put them at a disadvantage to their Internet counterparts,” Durbin said.

Illinois is one of seven states that currently collect taxes on Internet access because they were grandfathered when a temporary bill passed in 1998. The permanent ITFA bill would sunset those taxes by 2020, which Durbin said would cost his state $390 million in taxes.

The MFA passed the Senate in the previous Congress when Senate Democrats were in the majority, but the measure has failed to get out of the House Judiciary Committee in this Congress.

According to Durbin, local merchants are becoming “showrooms” as consumers visit local stores and shopping malls to research products and then make their purchases online. By not collecting sales taxes, online retailers enjoy a 5% to 10% advantage in price.

For the first time, more Americans shopped online over the last Thanksgiving holiday weekend than in brick-and-mortar stores, according to the National Retail Federation. Online retailers showed a 30% increase in sales from the same weekend last year.

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