NCPA - National Center for Policy Analysis

State Internet Taxes Still a Possibility

January 15, 2004

The House voted in November to continue a five-year moratorium on Internet taxes, however, the Senate failed to do the same, leaving open the possibility of state Internet taxes taking effect before January 20, when Congress reconvenes.

Proponents of state Internet taxes claim the ban robs them of potential revenue:

  • Ohio Governor Bob Taft reports his state stands to lose $350 million per year.
  • The Congressional Budget office estimates that the ban deprives states of $80 to $120 million annually in tax revenues.
  • However, the Multistate Tax Commission claims even higher estimates of between $4 billion and $9 billion in the year 2006.

Moreover, opponents of the moratorium, such as Lamar Alexander (R-Tennessee), claim that with budget shortfalls affecting many states, the inability to tax the Internet will simply force Tennessee and other state governments to tax goods such as food, medicine and college tuition.

Proponents of a ban, including Senator Ron Wyden (D-Oregon), believe that without such legislation, states would tax everything Internet users do, from e-mails to financial services, to on-line magazines and newspapers -- and that state and local governments are trying to redefine "Internet access" in an effort to find new ways of taxation.

Source: Christine Hall, "Will States Tax the Internet?" Budget and Tax News, Heartland Institute, December 2003.


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