Senate renews plan to ban internet taxes forever

Do you ever look at your phone bill and wonder, “what the heck are all those fees?” While it’s a natural impulse to blame the mendacity of the phone company, most of those items are there because various governments put them there.

The good news is that federal law bans tax on internet service — meaning that most of us don’t see something like this on our broadband bill:

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Well, for now, at least. Due to a quirk in Congress, the current relief from internet taxes is based on a temporary measure that keeps expiring and getting renewed on a short-term basis.

But as The Hill reported Tuesday, a bipartisan group in the Senate, led by John Thune (R-SD) and Ron Wyden (D-Or), wants to change that by passing a law called the Internet Tax Freedom Forever Act.

Those who follow these things may say we’ve seen this movie before, and that Congress has tried and failed to make the internet tax permanent in the past – most recently last December.

This time is likely to be different, however, as the bill appears to be finally decoupled from a more contentious proposal known as the Marketplace Fairness Act, which would have required online retailers to collect state sales tax.

While both measures are broadly related to taxes and the internet, they are are in fact separate issues: one is about taxing ISP connections, and the other is about how state sales tax should apply to online retailers. But in the past, supporters of the latter have tried to tie the two issues together when it came to voting in Congress.

Now that the Internet Tax Freedom Forever Act appears to be up for debate on its own, however, its chances of success seem high given that it enjoys broad bipartisan support.

The measure could, however, get tangled up in the hot button issue of the FCC’s proposal net neutrality, which Republicans want to portray as tax grab. As I’ve explained in the past, such claims — including a “study” claiming a $17 billion tax hit — appear utterly specious but, well, that won’t stop certain grandstanders from touting them anyways.

Finally, it remains to be seen how a permanent ban on ISP taxes would affect seven states (Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin) that imposed internet taxes prior to October 1, 1998, and have been allowed to skirt the temporary ban because of a grandfather clause.

US consumers dodge internet tax for another year

Most Americans’ broadband bills will be free of state taxes until October of 2015 or later, thanks to a decision by Congress to use a major budget bill as a means to extend a current moratorium on internet access taxes.

The move reflects an ongoing policy decision by lawmakers to bar states from imposing broadband taxes similar to the ones that consumers see on their phone bill bills. While the tax ban is broadly popular, its future was up in the air for most of 2014 as a result of lawmakers’ attempts to tie it to an unrelated internet tax issue: whether online retailers should have to collect out-of-state sales taxes.

A proposed law to require online sales tax collection, which brick-and-mortar retailers say is necessary to create a level playing field, collapsed in November. As a result, it was for a while unclear if Senate Democrats would agree to extend the internet access tax ban — now, as National Journal and others have reported, the passage of the spending bill makes clear that they will.

While internet tax policy is not the most glamorous tech topic, it’s growing in importance as more and more commerce is conducted online. While outlets like the Wall Street Journal have urged lawmakers not to burden the internet with new taxes and burdensome collection requirements, state governments say they need to make up sales tax revenue as more shoppers migrate to the internet.

The issue is more complicated still since some states have no sales tax at all, while a handful of others benefit from grandfather clauses that let them collect broadband taxes despite the federal ban.

The upshot is that, for now, the issue of internet taxes will be kicked to 2015. It remains to be seen if the Republican Congress will try to make the broadband tax ban permanent, and if the issue will remain tied to the debate over online sales taxes, which is expected to resurface next year.