Internet Taxes to Come Back Into the Spotlight in 2015

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The so-called “Cromnibus” bill that Washington lawmakers agreed to in early December 2015 provided stopgap funding for vital government functions until a more permanent spending agreement could be reached. The bill also kicked the can down the road on another important issue: Internet taxes. Two separate, but entangled, Internet-taxation issues have reached various points of debate on Capitol Hill. The latest spending bill put a moratorium on both until October 2015, but the debate over them will surely rage on.

The biggest of the two issues relates to the Internet sales tax. Currently, 45 states have a sales tax. Only a handful of those states charge sales tax for online purchases made from out-of-state vendors. In the remaining states, consumers are supposed to self-report their online sales tax liability. As you may guess, that self-reporting rarely happens.

In 2014, the Senate passed the Marketplace Fairness Act, which would have given states the authority to force out-of-state online vendors to collect sales tax. Primarily brick-and-mortar retailers like Wal-Mart have supported such action. Online retailers like Amazon have resisted it, primarily because the lack of an online sales tax gives them a price advantage.

While it seemed the bill had some momentum, that changed after the midterm elections. With Republicans taking a larger majority in the midterms, though, the bill stalled. Many Republicans view the bill as a tax increase, while supporters say it simply enforces tax rules that are already in place. Either way, the bill is certain to be an issue as the end of the moratorium approaches in October.

The second issue involves taxation on Internet access. While this idea seems to have a thinner base of support, it’s still gotten some level of traction. Some state and local governments want the ability to tax Internet access, with estimates that such a tax could bring in as much as $500 million in revenue.

Opponents, however, say that tax-free Internet access is too important and that added revenue doesn’t justify such a tax. There’s been a ban on state-level Internet taxes for more than 15 years. Democratic Senator Ron Wyden got 52 co-sponsors for a measure that extended the ban until October 2015.

With both moratoriums ending in the same month, it seems likely that the issues will be tied together in some form of legislation. With more and more businesses turning to online transactions, the outcomes of the two issues are more important than ever. Enforcement of online sales taxes could take away a key online selling advantage. More importantly, enforcing the laws of 45 states could be an administrative headache that’s just too much for small companies to handle. Legislators will be considering all of these factors as they debate these issues in 2015.