With the long-time moratorium on Internet access tax set to expire in November, the U.S. Senate and the House took action on bills this week to keep it going. But the Senate attached its bill to separate legislation requiring more online retailers to collect sales tax.

Two bills active in Congress this week seek to continue blocking a tax on Internet access fees, but one of them also seeks to impose a sales tax on e-commerce transactions.

Since the federal Internet Tax Freedom Act was passed in 1998, state and local governments, as well as the federal government, have been unable to introduce taxes on the fees consumers pay to access the Internet.

The moratorium has been extended multiple times with bipartisan support, the last extension taking it to Nov. 1 of this year. Now both Republicans and Democrats in Congress are behind new bills to again extend the ban on Internet access tax. However, a more controversial proposal that would let states force more online retailers to collect sales on e-commerce transactions has become intertwined in the extension of the Internet access tax moratorium.

The Republican-dominated House took the first step this week in extending the uncontroversial ban on web access taxes when it passed with bipartisan support on Tuesday the Permanent Internet Tax Freedom Act, which would permanently extend the ban on taxes applied against the fees Internet service providers charge. The ban applies to all states except for seven—Hawaii, Ohio, New Mexico, North Dakota, South Dakota, Texas and Wisconsin—that have had Internet access tax laws since before the Internet Tax Freedom Act was passed in 1998.

A bipartisan group of members of the Senate, where Democrats are in the majority, later on Tuesday introduced the Marketplace and Internet Tax Fairness Act, which would extend the ban on Internet access tax for 10 years, until November 2024. However, the new Senate bill combines that extension with the provisions of the Senate-passed Marketplace Fairness Act, which would grant states the power to force online and catalog retailers with at least $1 million in sales outside their home states to collect sales tax from online shoppers nationwide.


The National Retail Federation, a trade group for retail chains, expressed support for the Senate bill. It contends that the ban on Internet access taxes will support continued free use of the Internet, while the online sales tax measure will “level the playing field” among retail chains that must collect sales tax on their online sales and web-only retailers who don’t have to collect sales tax. Under existing federal law, retailers aren’t required to collect sales tax in states where they don’t have a physical presence, such as stores or distribution centers. Amazon.com Inc., which has been building out a broad network of distribution centers throughout the United States to improve its shipping and delivery operations, switched from opposing the sales tax law to supporting it a few years ago.

The bill the Senate introduced this week is co-sponsored by three Republicans and three Democrats: Senators Mike Enzi (R-WY), Susan Collins (R-ME), Lamar Alexander (R-TN), Dick Durbin (D-IL), Heidi Heitkamp (D-ND) and Mark Pryor (D-AR).

But NetChoice, an organization that represents web-only merchants and other Internet companies, contends that the new Senate bill is trying to tie what NetChoice considers a good law—the ban on Internet access tax—with what it says is a flawed Marketplace Fairness Act. Among other problems with that legislation, NetChoice executive director Steve DelBianco says, is that it doesn’t clarify how small retailers with only $1 million in annual remote sales could afford to cover the cost of collecting sales tax.

Phil Bond, executive director of We R Here, another coalition representing some 13,000 small retailers opposed to online sales tax, cites a study conducted by consulting firm PricewaterhouseCoopers that figures the cost of collecting tax at 17 cents on each dollar collected.

DelBianco suggests that the House, where the Senate’s Marketplace Fairness Act is under review by the Judiciary Committee, still needs time to address such shortcomings. House Judiciary Committee Chairman Bob Goodlatte (R-VA) has said the Senate’s Marketplace Fairness Act has multiple problems to address, such as how small Internet retailers would be able to handle potential tax audits by multiple state revenue departments. Several conservative House Republicans have opposed the online sales tax bill as a new tax on consumers; proponents of the bill say consumers are supposed to voluntarily pay sales tax on online purchases, through few do.


DelBianco says supporters of this week’s Senate bill “are seeking to derail the deliberative process by sabotaging a highly productive House debate about how to collect remote sales tax without creating unfair burdens for Internet sellers.”

“We’re disappointed the Senate has chosen to link the controversial and fatally flawed MFA to the vitally important renewal of the Internet Tax Freedom Act,” he says. The members of NetChoice include eBay Inc., Google Inc, Liberty Interactive Corp. and Overstock.com Inc. Liberty Interactive and Overstock are Nos. 6 and 31, respectively, in the Internet Retailer Top 500. Liberty Interactive’s e-commerce operations include QVC.com, Provide Commerce, BuySeasons.com and Backcountry.com.

Proponents of the Senate’s bill this week, however, say that combining legislation on Internet access tax and online sales tax is a valid way to prod the House into action on the online sales tax measure. Indeed, in January the Marketplace Fairness Coalition, a group representing some 300 retailers and retail trade associations, called on the House Judiciary Committee to speed up its review of the Senate’s Marketplace Fairness Act, which the committee has been reviewing since shortly after the Senate approved the online sales tax bill by a vote of 69-27 in May 2013.