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Congress Passes Permanent Ban on Internet Service Tax


 from Internet taxes?

A week after a subcommittee hearing on nexus issues, Congress approved the Permanent Internet Tax Freedom Act (PITFA) in a voice vote. The measure now moves to the Senate for consideration.

House Resolution 235 would make permanent the Internet Tax Freedom Act, which prohibits taxes on Internet access and any Internet-specific commodities such as bandwidth until its expiration on October 1, 2015.

NGA Reaction

Executive Director Dan Crippen of the National Governor’s Association (NGA) unequivocally expressed dismay at the news coming out of Congress. During the hearing on state nexus issues last week, Mr. Crippen raised the issue of remote sales tax in his opening and closing comments, as well as during the body of his testimony. A sample of those comments is below.

Opening comments

“It … is unfortunate that the subcommittee was unable to discuss the tax issue of the greatest importance to states: The need to create parity between in-state and out-of-state retailers regarding the collection of state and local sales taxes. Governors maintain that before any federal legislation regarding state tax legislation is passed, Congress must first address this disparity.”

Testimony

“All of the bills before the committee today purportedly have a common goal – balancing the sovereignty of states to set their own tax and revenue systems versus the benefits of uniformity for an ever-growing digital and mobile economy. To really accomplish this goal, however, Congress must first work with states to establish a level playing field for all retailers both in-state and out of state. Specifically, NGA calls on Congress to authorize states to require remote vendors to collect state sales taxes.

Conclusion

Mr. Crippen’s conclusion focused entirely on the issue of remote sales tax.

“It goes without saying that the Internet and electronic commerce are no longer nascent technologies or trends, but instead well-established platforms and marketplaces that will help drive our 21st century economy. States are working to modernize their tax laws to adjust for this new reality while promoting the continued growth and prosperity of electronic commerce.  The time has come for Congress to join with states to improve the laws and ensure government is not picking winners and losers in interstate commerce. While the bills before this committee are important, if Congress truly wants to work with states to craft thoughtful structural change that will help bridge the gap between the physical economy of the 20th century and the digital economy of the 21st century it must first address the collection of state and local sales taxes.”

The Next Step

For the PITFA, the next step is deliberation in the Senate — although the Senate is not expected to take it up

For remote sales tax, the next step is expected to be the introduction of the Remote Transaction Parity Act by Rep. Jason Chaffetz (R-Utah) early next week. His bill is similar to the Marketplace Fairness Act of 2013 (MFA), which was overwhelmingly approved by the Senate but shunted in Congress. The Remote Transaction Parity Act is one of three remote sales tax measures currently floating around the capital.

The two measures could be addressed simultaneously. “A top Senate aide told the Washington Examiner ‘it would not be surprising at all’ if the Senate combined the two measures into one bill, as they did last year. ‘They are trying to attach a controversial bill to one that is universally accepted and supported.’”

Whatever happens, implementing an automated solution that simplifies sales tax management would be wise. Learn more.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.