Set back for US 'Amazon' online sales tax plans

The US Congress passed a bill, the Permanent Internet Tax Freedom Act, on 15 July which blocked proposals for states to tax internet access.

The legislation, the latest version of the 1998 Internet Tax Freedom Act, is likely to damage other proposals to tax further online retail across State borders.  The legislation was approved by the House of Representatives, and will go to the Senate next.

The new ban on the taxation of broadband internet access will likely mean that it will will be more challenging to progress a uniform sales tax on e-commerce along the lines of the current proposed Market Fairness Act - the so-called 'Amazon Tax'.  This legislation, which was been approved by the Senate earlier this year, is aimed at forcing all out-of-state retailers to collect sales taxes for transactions with consumers in other states.  This is to provide a level playing filed for in-state internet and bricks and mortar retailers.

The Act gives states the option to tax out-of-state retailers, and is no compulsory.  In theory, states do not have this right, but many (e.g. New York) have introduced measures to achieve this.

The objectors to the Market Fairness Act claim that it undermines the businesses of states which do not levy sales taxes, and which would therefore have to charge sales tax for the first time.