Federal Issues
   

Extension of Internet Tax Moratorium Held Hostage by Our Nation’s Governors

It is unfortunate that our nation’s governors and their supporters on Capitol Hill are holding hostage an extension of the Internet tax moratorium set to expire in October. Apparently, more than 40 governors are sending a letter to Congress urging them not to extend the ban on new Internet taxes unless states are granted permission to shift their sales and use tax collection burden to out-of state merchants.

In 1998, Congress passed the Internet Tax Freedom Act (ITFA) to protect the Internet and e-commerce from the inconsistent patchwork of taxes by more than 7,500 taxing jurisdictions in this country. ITFA prohibits Internet access taxes, multiple taxation of a single transaction by more than one taxing jurisdiction, and discriminatory taxes that do not apply to offline purchases.

Let’s make one thing clear. E-commerce transactions are not tax-free. Such transactions are subject to the same sales tax that consumers would have to pay at traditional brick-and-mortar retailers. The difference is online merchants are not required to collect and remit these taxes unless the retailer has a substantial physical presence, or "nexus," in the state. This according to a 1992 U.S. Supreme Court decision in Quill Corp. v. North Dakota.

As the deadline for the moratorium approaches, these governors are trying to force Congress to reverse Supreme Court precedent, and force non-resident businesses to collect and remit their taxes for them. Such authority would be detrimental to the future growth of e-commerce, as online businesses would be forced to bear the unfair and expensive burden of complying with the thousands of taxing jurisdictions in this country.

It should not be Congress’ role to provide a mechanism for states to shift their tax collection burden to out-of-state retailers, as a result of the states’ failure to collect sales and use taxes from their citizens. Congress’ role should be to ensure the states do not unfairly export this burden, thereby obstructing interstate commerce.

Time is running out. It is imperative that Congress passes a clean and permanent extension of the Internet tax moratorium before it’s too late.


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