A tale of two Internet tax bills
Poll after poll demonstrates clearly that Americans oppose Internet taxes. Yet even as Congress is poised to act on a wildly popular bill to bar states from imposing Internet-access taxes, the measure has been held up by those who want to tie it to a deeply unpopular plan to expand states’ taxing powers online.
The Permanent Internet Tax Freedom Act — before the U.S. Senate this week as part of deliberations on the Trade Facilitation and Trade Enforcement Act conference report — would protect consumers by proscribing states from taxing Internet access. According to a new poll conducted by Harris Interactive on behalf of the National Taxpayers Union, fully 83 percent of Americans support a permanent ban on Internet access taxes, as consumers are tired of the sorts of double-digit tax burdens they often face with other communications technologies, like wireless service.
This clear message has not fallen on deaf ears in Congress, where support is similarly quite broad. PITFA has passed the U.S. House on a simple voice vote twice in the past two years, indicating no significant opposition from either side of the partisan aisle. However, perhaps precisely because it is considered a “must-pass” measure, PITFA has drawn interest from lawmakers who want to attach it to the completely unrelated Marketplace Fairness Act.
Unfortunately for taxpayers, the MFA is neither good policy nor popular, so it has served as a poison pill preventing the smooth passage of PITFA. The MFA would allow states to impose sales-tax-collection obligations on businesses outside their borders. This would give aggressive states like California, New York and Illinois the power to tax and audit businesses all across the country, even if the business has no physical presence whatsoever in their jurisdiction.
This system of “taxes without borders” would impose huge compliance costs on businesses and upend the bedrock principle that state power ends at the state border. The U.S. Constitution’s Interstate Commerce Clause gives Congress the power – one might say the duty – to prevent states from imposing significant damage to interstate economic activity. PITFA represents the proper balance of federal and state power, as it would keep aggressive states from undermining the Internet. The MFA does the exact opposite.
Unsurprisingly, the MFA is almost as unpopular as PITFA is popular. Polling conducted by Mercury on behalf of the R Street Institute and NTU has found broad and deep opposition to such a bill. Likely voters disapproved of the scheme by a 22-point margin overall. Self-identified Republicans opposed it by a 38-point margin, independents by a 20-point margin and even self-identified Democrats by a five-point margin.
As is common in Washington, this misguided and unpopular legislation can only become law if it finds a popular, must-pass bill from which it can extract leverage. And so some senators, led by Senate Minority Whip Richard Durbin, D-Ill., have taken the Internet-access-tax ban hostage to their desires to vote on an Internet-sales-tax bill. They have cut a deal with Senate leadership to secure a future vote on MFA in return for laying down arms on PITFA.
Luckily, Senators wishing to defend the Internet from the long arm of tax law can begin heading off this strategy this week. By passing the trade bill with the Permanent Internet Tax Freedom Act intact and rejecting the Marketplace Fairness Act, they can protect consumers and businesses from the ever-expanding reach of the tax man.
