Permanently Banning the Internet Tax

July 10, 2014

Congress should permanently ban internet taxation, contends James Gattuso, senior research fellow at the Heritage Foundation.

There has been a federal moratorium on state and local internet taxation since 1998, a measure which has been renewed and extended three times over the last 16 years. States are prohibited from taxing "internet access" or imposing "multiple or discriminatory" taxes on online commerce. As such, states cannot tax internet sources, services or usage.

Currently, the ban is set to expire on October 31. But in front of the House of Representatives is H.R. 3086, a bill that would make the ban on internet taxation permanent. Gattuso explains why the ban is important:

  • The Internet has grown dramatically since 1998, and a permanent ban would provide certainty to entrepreneurs and investors, especially as 11 of the 25 firms that invest the most in the U.S. economy are Internet-related businesses.
  • An average state tax of 2.5 percent could reduce broadband subscribership by five to 15 million people, and a tax of 5 percent could mean up to 30 million fewer subscribers. Low-income consumers would be especially hurt.

Opponents of the state tax ban, however, say that such a law violates state authority. But Gattuso contends that the internet is an interstate network, putting it under the purview of the federal government.

Source: James L. Gattuso, "Read My Bits: No New Taxes (Permanently)," Heritage Foundation, June 30, 2014.

 

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