The 1998 moratorium was a reaction to state and local government attaching the same kinds of fees and taxes that now accompany monthly telephone bills. Under the original moratorium, states that already collected internet access fees were allowed to continue to collect them, but no new government jurisdictions could levy the fees.
The Congressional Budget Office reports that governmental jurisdictions in seven states - Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas and Wisconsin – tax access to the internet and that those entities collect “several hundred million dollars annually” from the fees. The House action this week would lift the protection of the moratorium and the seven “grandfathered” states would no longer be able to collect the fees.
The measure now faces Senate action. While the bill does purport to ban any form of internet-only taxes, it does not ban the collection of internet sales taxes.
The House action banning interact access taxes sets up a political collision between the House-passed Permanent Internet Tax Freedom Act adopted Tuesday and the Senate-passed Marketplace Fairness Act adopted a little over a year ago.
The GOP-controlled House has refused to take up the Marketplace Fairness Act, which would allow states to collect sales tax on large Internet sellers that have no presence within their borders, impeding the ability of Internet shoppers to avoid sales taxes they readily pay at brick-and-mortar stores for the same items.
Observers believe that Senate Democrats will attempt to link the bill making the internet access tax moratorium permanent to adoption of the Marketplace Fairness Act (MFA). That’s certainly a reasonable expectation and one that produces a clear political bargain to be made – tax-free access to the internet in exchange for the fair collection of existing sales taxes in all venues – physical and virtual.
Proponents of MFA said the new law would balance an unfair advantage that online retailers currently enjoy over traditional bricks-and-mortar stores. Current law prohibits states from collecting sales taxes from retailers who have no physical location or “nexus” in their state.
The Congressional Research Service cited federal estimates of $4.1 trillion in online sales in 2010, which amounts to 16.1 percent of all U.S. sales. Estimates of foregone sales tax revenue from these transactions total some $23 billion. The NCSL identifies an annual $303.4 million in uncollected Mississippi sales tax revenues.
The MFA doesn’t tax the Internet. It makes goods purchased on the Internet subject to the same tax collected daily on counter sales of exactly the same goods. So, as a matter of fact, the subject under debate is online sales tax collection – not “taxing the internet.”
But that’s been the dodge.
The fair collection of sales taxes through all venues - In the name of “no new taxes on the internet” – has been sacrificed. There have been multiple state legislative efforts to address this tax inequity, but business interests representing companies that enjoyed an online 7 percent competitive edge over mom-and-pop traditional merchants have so far been able to beat back those efforts by labeling them as “tax increases.”
They aren’t. Buyers, on the honor system, are supposed to pay the sales taxes they owe in the states where sales taxes are applicable. Unfortunately, the vast majority of online buyers simply don't. Therefore, if two next-door neighbors in Pontotoc buy the same hammer - one online from another state and one in a Pontotoc store - they both owe Mississippi sales tax of seven percent for their hammer.
It isn’t a new tax to ask the guy who bought the hammer online to pay the same sales tax as they guy who bought the hammer in a Pontotoc store.
(Daily Corinthian columnist Sid Salter is syndicated across the state. Contact him at 601-507-8004 or firstname.lastname@example.org.)