Congress Passes Ban On Internet Access Taxes

Date: February 12, 2016

Measure Banning Access Taxes Fails To Address Online Sales Taxes

In a 75-20 vote on Thursday, the Senate approved a measure to permanently extend the Internet Tax Freedom Act, meaning states and local governments are barred “from taxing access to the Internet,” the AP reported. The vote “gave final congressional approval to the wide-ranging bill, which would also revamp trade laws.” Despite having broad support, the AP reported some lawmakers are unhappy the bill left out a “more controversial” proposal that would allow states to force online retailers to collect sales tax, and proponents of the proposal argue traditional retailers are at a competitive disadvantage without it. The Hill “Floor Action” blog reported that the Internet Tax measure had stalled the wider bill, which “includes an overhaul of the US Customs and Border Protection agency,” new “protections for intellectual property,” and “more tools for the government to crack down on currency manipulation.” Sen. Orrin Hatch said the bill is “a major step forward” in efforts to strengthen US interests in international trade.

What Happens Next

The AP reported that the White House has said President Obama intends to sign the measure. Once this happens, the seven states that have been collecting Internet access taxes – Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin – will “have to phase out their taxes by the summer of 2020.” Though the current measure failed to include a tax on Internet sales, earlier this week Senate Majority Leader Mitch McConnell (R-KY) “agreed to hold a vote this year on the online state sales tax proposal,” meaning the issue of taxing online sales is likely to be revisited in the near future.

What This Means For Small Businesses

Though small businesses are no stranger to the burdens of over-taxation at the local, state, and federal levels, the latest measure is problematic because it fails to address state collections of Internet sales taxes. Many small businesses are suffering because they exist in local brick-and-mortar spaces and thus must collect sales tax from customers, while their online competitors are able to offer lower prices in part by skirting sales tax collection. Congress must work to close this loophole.

Additional Reading

Reuters also covered the story, and the Wall Street Journal in an editorial praised the measure’s passage.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

Related Content: Small Business News | National | Taxes

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