The first Internet Tax Freedom Act became law all the way back in 1998. Its purpose was to promote the growth of internet services — then, before the first dot-com bust, still a brand-new idea — by making sure they wouldn’t be taxed out of being. The law prohibits local, state, and federal governments from imposing taxes on internet access or specific internet-only features, like any tax “imposed on or measured by the volume of digital information transmitted.”
The language in the Act is specifically targeted at “discriminatory” taxes. While states and localities (and the feds) are, under the text, allowed to continue adding tax to your telecom services bills, they aren’t allowed to tax internet access separately in any above-and-beyond way. So you’d pay the same tax to Verizon for your newfangled DSL hookup that you would for your phone line, but you wouldn’t be assessed any extra tax for transmitting data over that line, basically.
The initial term of the Act was for three years, but it has been continually extended since then. Having to renew a piece of law that has since become the normal baseline every three years gets, well, pretty tiresome. So for several years now some members of Congress have been trying to pass a Permanent Internet Tax Freedom Act (PITFA) that doesn’t need constant renewing, and that’s where this new agreement comes in.
Procedurally, this particular piece of law is a bit in the weeds and not as straightforward as a famous Schoolhouse Rock short would have led us all to believe. The House version passed back in June, and the Senate version just kind of… sat around for a while, more or less. But with the end of the year rapidly approaching and an election year dawning behind it, ’tis the season for Congress to make moves on as much as they can cram in before they recess.
That’s how a House and Senate conference committee this week took up the contents of the bill and added it to a package of trade and customs enforcement legislation they were already moving on. The permanent internet tax freedom language was successfully added in there, and the potential bill reported out of committee this week.
In short, the messy sausage-making of getting people to agree on stuff and making the House and Senate versions match is finally done. Congress is expected to vote on, and to pass, the legislation in the very near future, after which it will go to the President’s desk and be signed into law.
The exception in the 1998 Act, and all its subsequent extensions, is for entities that imposed a tax before it became officially illegal to do so. Anyone who got in under the wire on or before Sept. 30, 1998, was grandfathered in and allowed to keep charging whatever they already were. Initially there were 13 states who cleared that deadline and levied a tax, however, as of October only seven remain: Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin. Under the new law, those states will have a little more than four years to phase out their existing tax.
Although the new law, when eventually signed, pretty much just represents a continuation of the status quo, at least one group is deeply unhappy about it. RILA, a trade association that represents (i.e. lobbies for the interests of) hundreds of major retailers (PDF list), expressed deep dismay about the Act in a statement, saying, “the move robs Main Street retailers, the backbone of local economies, of the logical companion to bipartisan legislation to level the sales tax playing field.”
Their grievance, however, is related to a separate taxation issue: the labyrinth of rules governing which online retailers have to charge sales tax for goods bought online, and where, and when, and who they are levied against. Though that particular tangle had for many years been a point of contention stalling any passage of the PITFA, it was eventually dropped and is not included in the current package… which leaves a whole new pile of taxes for Congress to keep fighting about next year and beyond.