Revealed: The Sneaky Way Congress is Now Trying to Pass “Internet Sales Tax”

by Mark Faggiano June 25, 2014

US Congress at Sunset

For the last 15 years, Congress has banned state and local governments from adding taxes and levies to Internet connections. That’s the good news.

Here’s the bad news: this ban on Internet connection taxes is coming up for renewal. This has led to movement in Congress related to that other big Internet tax-related issue: Internet sales tax.

Policy wonks in-the-know believe that folks in Congress who support the Marketplace Fairness Act will attempt to add similar legislation to the Internet tax bill before the moratorium on Internet connection tax can be renewed. So basically there would be two bills combined into one.

What does Internet Connection Tax have to do with Internet Sales Tax?
One word: revenue.

Many policymakers at the state and local level feel that they’re missing out on a revenue source by allowing remote eCommerce sellers to sell into their states without charging and remitting sales tax.

Never mind that this line of thinking goes directly against the 1992 Quill v. North Dakota Supreme Court decision, which forbids states from requiring merchants with no “sales tax nexus” to collect and remit sales tax in a state.

Internet connection tax is another revenue source that state and local policymakers feel they’re missing out on. They’re making a grab for one or the other, or maybe even both.

It’s vital to note that this could potentially include all eCommerce merchants, especially merchants who don’t have sales tax nexus (physical presence) in a state.  So multiply the hassle of collecting, filing and remitting sales tax returns in your state by the number of states that have a sales tax: 45. This is the burden that many in Congress wouldn’t mind placing on eCommerce sellers.

What Happens Now?
Congress has until November 1st to renew the moratorium on taxes on Internet connections.

Here’s what could happen…

Scenario 1: Congress tacks on the sales tax issue onto the Internet connection bill. The endless squabbling over Internet sales tax gets in the way (which is entirely possible). We end up with a new tax on our Internet connections.

Scenario 2: Congress reaches a deal. The ban stays in place but we now have Federal sales tax law. This is the nightmare scenario for eCommerce sellers.

Scenario 2B: We don’t yet know what form a proposed Internet sales tax law will take. The Marketplace Fairness Act, while deeply flawed, made allowances for smaller eCommerce sellers. Congress may propose new language that doesn’t include the current exemption for sellers who generate less than $1 million in remote sales. This would mean a nightmare of compliance suddenly raining down on ALL online sellers.

Scenario 3: The Internet sales tax proponents back down and allow the Internet access tax moratorium’s renewal. This is where eCommerce merchants win: No new taxes on our Internet connections and no Internet sales tax.

What Can You Do?
Contact your congressional representatives.  Let them know that you’re aware of this situation and that you oppose Internet sales tax of any kind. The more they hear from real constituents, who are affected by the decision they make, the more likely they will be to vote against Internet sales tax measures.

For more on why Internet sales tax harms small business, see our earlier post for more on TaxJar’s stance against the Marketplace Fairness Act and other Internet sales tax measures

The basics of US sales tax

Learn the fundamentals of sales tax.

Watch the video