Legislation Could Change Taxes On eCommerce

By Cheryl Knight, contributing writer

With the recent passage of the Permanent Internet Tax Freedom Act, a piece of legislation dealing with taxes on the fees that Internet server providers (ISPs) charge their customers is set to come before Congress. The extension of the ban on this Internet access tax finds widespread support among members of both the House and the Senate.

But, according to an article by Retail Solutions Online, controversy has cropped up with the attachment of separate legislation to the bill having to do with sales tax collected by online retailers.

Ban Against Taxes On Internet Service Fees

The permanent ban against taxes applied to ISP fees is set to take place within 43 of the 50 states in the U.S., with seven states excluded due to fact that they had Internet access laws in place since before the original legislation — in the form of the Internet Tax Freedom Act — enacted in 1998.

Remote Sales

The Senate has somewhat complicated matters, though, by attaching the Marketplace Fairness Act to the Permanent Internet Tax Freedom Act. In essence, this act grants states the power to collect tax revenues from online retailers who bring in at least $1 million in sales outside of the state in which the business resides.

And while the current legislation does not address sales tax, the hope is to attach sales tax legislation to the act before the vote.

“The retail industry has rapidly evolved over the last two decades with e-commerce. It is time for Congress to eliminate the sales tax disparity,” according to David French, National Retail Federation (NRF) Senior Vice President for Government Relations, as quoted in an NRF article.

NetChoice, representative of Web-only merchants and Internet companies, on the other hand, contends that even though the Permanent Internet Tax Freedom Act is a good act, attaching a flawed act like the Marketplace Fairness Act increases the burdens on Internet sellers.

According to Democratic Senate Finance Committee Chairman Ron Wyden from Oregon, in an article published by The Hill, the Marketplace Fairness Act legislation does not tax the Internet itself but gives states the ability to collect taxes that are due to them.

IT solution providers will have to wait and see what actual legislation is enacted so they can best advise their clients on how to proceed going forward.