Congressman Reboots Proposed Ban on Internet Access Taxes

by Alexander Anton, Heartland Institute, February 13, 2015

In early January 2015, Rep. Bob Goodlatte (R-VA) reintroduced the Permanent Internet Tax Freedom Act (PITFA) for consideration by the U.S. House of Representatives. If approved by Congress and signed into law, the bill would “permanently extend the moratorium on Internet access taxes and multiple and discriminatory taxes on electronic commerce.”

A temporary ban on these taxes was included in January’s “cromnibus” continuing resolution and omnibus spending bill, but the ban expires this fall.

‘Protecting Consumers from Taxes’

Ryan Radia, associate director of technology studies at the Competitive Enterprise Institute, says the bill not only protects taxpayers, but also the continued growth of e-commerce.

“It [PITFA] would ensure that states and municipalities do not impose unreasonable or excessive taxes on Internet access,” he said. “This policy, which has remained in effect through a series of temporary measures passed by Congress since 1998, has helped the Internet flourish by protecting consumers from taxes that discourage broadband adoption.”

Bad News for the Tax Man

Radia says local government officials may oppose the bill’s passage, but options other than adding taxes to people’s Internet bills exist.

“If extracting money from taxpayers is your goal, the permanent ban on Internet taxes is bad news for you. However, I nevertheless favor the ban, and believe that states have ample alternative sources of revenue,” he said. “These include sales taxes on other goods, individual and corporate income taxes, user fees, and property taxes, which are primarily levied and collected at the county level.”

Currently, seven states—Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin—are permitted to tax Internet access.

However, Radia says those states should not receive special carve-outs allowing them to tax Internet access.

“States enjoy broader powers to tax and regulate than the federal government, but in certain economic spheres, a uniform federal standard is proper. After all, the Constitution expressly empowers Congress to ‘regulate commerce with foreign nations, and among the several states,” he said. “Although the federal government has exceeded this authority on numerous occasions—and the courts have often acquiesced to such excesses—not all congressional acts that limit state authority are improper.”

Across State Lines

Banning taxes on Internet access, says Radia, would not violate states’ rights to govern themselves.

“The Internet is a quintessentially interstate market; when Americans use the Internet, they almost invariably interact with servers located across state lines—and often international boundaries—every day. As such, Congress would not usurp states’ rights were it to make permanent the Internet tax ban, even if it were to strip states of their grandfathered Internet tax laws.”

R Street Executive Director and Senior Fellow Andrew Moylan agrees with Radia’s conclusions, calling the bill’s introduction “an important development.”

“Getting rid of the grandfathering for the seven states is a great idea. All previous versions of this proposal have lacked removing the exemption,” he said. “States have power granted to them by the people to achieve common goals. Congress has the power to do this, preventing states from doing dumb things to harm interstate commerce.

“Conservatives are right to be wary of exercises of that power, but this is what the interstate commerce clause was created to do,” Moylan said.

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Alexander Anton (alexanderanton.heartland@gmail.com) writes from Palatine, Illinois.

Internet Info:

Text: HR235

“Should the Internet Tax Moratorium be Made Permanent,” George S. Ford, http://www.heartland.org/policy-documents/should-internet-tax-moratorium-be-made-permanent/