NCPA - National Center for Policy Analysis

Federal Ban on Internet Tax Constitutional

April 16, 2004

Senator Lamar Alexander and a group of former Governors in the Senate successfully blocked the extension of the Internet Tax Moratorium that had been standard policy under both the Clinton and Bush administrations.

Opponents of the ban on Internet taxation argued that, aside from costing the states too much revenue, it was an overreach of federal power that legislates away the rights of the states to make their own taxing decisions. However, George Pieler of the Institute for Policy Innovation says that, while the Constitution's commerce clause has been long abused, the federal ban is not such an instance. Instead, he says, the policy is clearly constitutional:

  • The Constitution grants Congress the power to "regulate commerce among the states," while also stating that "no tax or duty shall be laid on articles exported from any state."
  • According to George Washington, "... the national Government should be armed with positive and complete authority in all cases which require uniformity; such as the regulation of trade."
  • The poor condition of American commerce and trade rivalries among the states were the prime motivators that led to the Constitutional Convention.

Few would argue that Internet access and internet commerce are major components of interstate commerce. After all, the sales tax systems being considered in many state capitals today would allow state governments to collect taxes beyond their geographic boundaries via third-party collection agents.

Pieler adds that there are fears in Washington that without the ban, the Internet superhighway will be forced to navigate the maze of overlapping and disparate state and local tax regulations and burdens that currently strangles the nation's telecommunications industry.

Source: George Pieler, "Return of the Cybertax," Institute for Policy Innovation, March 2004 and Joseph Farah, "Why Internet tax is unconstitutional,", April 7, 2000.


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