At the dawn of the broadband era, Congress recognized that the Internet was becoming so fundamental to communications and the economy that it barred states from taxing the services that enabled people to log on. But some anti-tax groups and online businesses have hijacked the “Don’t tax the Internet” rallying cry for a specious argument: They say companies that sell taxable goods online shouldn’t have to collect sales taxes from out-of-state buyers. The two issues are intersecting in Congress this year, and lawmakers should renew the ban on new and potentially duplicative taxes on the Internet, while also helping states enforce the sales tax laws that already apply to online purchases.
Local governments have long taxed phone and cable TV services, and as residential Internet accounts proliferated in the 1990s, a number of jurisdictions started to tax those as well. Congress responded in 1998 by temporarily banning any additional jurisdictions from taxing Internet access services, on the grounds that such costs would deter Americans from getting connected. With nearly 30 percent of U.S. homes still not connected via broadband, now is not the time to add fees that will push the Internet further out of some families’ reach.
Senate Democratic leaders want to tie the no-new-Internet-taxes bill to a measure that would let states require online retailers in other states to collect sales taxes for them. This proposal wouldn’t impose any new taxes on the Internet — shoppers there already owe “use” taxes on purchases from out-of-state retailers. It’s just that they typically don’t pay them.