Open Thread: Come November, You Could Pay More Taxes Online

"Millions of Americans could face new state taxes on their Internet access this fall, as Congress struggles with how to extend an expiring moratorium on such levies," the Wall Street Journal's John McKinnon reported in the May 6 paper, noting that the federal moratorium in the Internet Tax Freedom Act expires on November 1, 2014 and has, thus far seen Congress taking "few concrete steps to re-enact it."

In a nutshell, some legislators are seeking to use the deadline as leverage to enact passage of the core provisions of a bill -- the Marketplace Fairness Act --which would permit states to force online retailers to collect sales taxes payable to the customer's state government even if the retailer does not have a physical presence in the customer's home state. Below the page break you can read an excerpt from McKinnon's story (emphases mine) and leave comments on this and/or anything else on your mind. This serves as today's Open Thread post.


The 15-year-old Internet Tax Freedom Act prevents most states and local governments from taxing access. The moratorium enjoys widespread bipartisan support in Congress.

The tax reprieve, however, is set to expire on Nov. 1, and so far, lawmakers have taken few concrete steps to re-enact it as they debate whether to combine it with a separate, more controversial bill. That measure would allow states to collect sales tax from out-of-state online merchants.

Proponents hope that combining the two bills will increase pressure on Congress to negotiate a compromise on the long-delayed online sales-tax legislation.

"I think enough interested parties would insist that if we're going to pass that [Internet-access tax moratorium], this other component might be attached to it," said Rep. Jason Chaffetz (R., Utah), who is leading a House effort to reach a compromise on the sales-tax bill. He added: "To think the first would move unattached is fantasy land at this point."

Combining the two issues, however, could create a legislative logjam. Anticipating the possibility of a standoff, many telecommunications companies already are preparing to send out notices to their customers in July or August, notifying them that they might have to start paying state taxes on their Internet access if the moratorium expires.

"Washington always likes to walk right up to the edge and look in the abyss," said Jot Carpenter, vice president for government affairs for CTIA-The Wireless Association, an industry trade group. "If they fail [to reach a compromise], then I think there is a risk" that Internet services would become subject to new taxes.

Some experts say that even if the moratorium expires, few if any states automatically would begin taxing Internet access, and many likely would need new authorizing legislation to do so.

"I would not expect there to be a great rush to immediately start imposing tax on Internet access," said Gale Garriott, executive director of the Federation of Tax Administrators.

Others contend that many states simply could modify their rules to impose a tax, without new legislation.

"I would say there is an unknown but significant number of states where…the tax department could write a new rule" applying the tax, said Scott Mackey, a wireless-industry consultant. A few states have legislation that specifically prohibits taxation of the Internet, while some other states were grandfathered under the moratorium and collect taxes now.

An average household could face an additional $50 to $75 a year if states decide to apply their sales or telecommunications taxes to Internet access, Mr. Mackey estimates.

So, in fairness, it's probably unlikely that as soon as November rolls around you will be ponying up more cash for your Internet access. It may take a while for your state government to get around to taxing your Internet access. All the same, it is a possibility, and one that seems to have gone largely unnoticed thus far in the national news media.

NB Staff
NB Staff