Internet Tax Freedom Act

Last updated

The 1998 Internet Tax Freedom Act is a United States law authored by Representative Christopher Cox and Senator Ron Wyden that established national policy regarding federal and state taxation of the internet, based upon its unique characteristics as a mode of interstate and global commerce uniquely susceptible to multiple and discriminatory taxation. The law prohibits state and local governments from imposing taxes directly on the internet or online activity, such as email taxes, internet access taxes, bit taxes, and bandwidth taxes. It categorizes taxes targeted specifically to the internet itself or to online commerce as “discriminatory.” Discriminatory taxes are outlawed. [1] [2]

Contents

When it was originally signed into signed into law as Title XI of Pub.L. 105-277 [3] on October 21, 1998 by President Bill Clinton, the Act imposed a ten-year moratorium on discriminatory and multiple taxation of the internet and electronic commerce. The law was subsequently extended on multiple occasions by Congress, and on February 24, 2016, it was made permanent as Pub.L. 114-125, §922(a).

In both its original and permanent form, the law's stated purpose is to promote and preserve the commercial, educational, and informational potential of the Internet. [4] [5]

Background

The technology of the internet was uniquely challenging to existing regulatory and tax paradigms when the World Wide Web emerged in the 1990s. Its decentralized, packet-switched architecture, which could route even the simplest messages through servers in multiple cities, counties, and states, exposed the medium to potential taxation across a confusing patchwork of thousands of U.S. state and local taxing jurisdictions. Municipalities had taxed and regulated cable television as if it were a public utility, and they saw the internet as no different. [1] The United Nations was studying the idea of a global email tax. [6]

In Congress and the White House, preserving the uniquely national and global characteristics of the internet featured more prominently in policy making. In a white paper entitled “The Framework for Global Electronic Commerce,” the White House pointed to “the Internet’s special characteristics” as reason for its concern “about possible moves by state and local tax authorities to target electronic commerce.” [7] The specter of multiple states and municipalities all simultaneously taxing and regulating commerce on the internet was seen as the far greater concern. Congress believed the increase in GDP facilitated by internet commerce would boost state revenues, not cut them. [8]

Legislative History

On March 13, 1997, Representative Cox introduced H.R. 1054, titled the “Internet Tax Freedom Act,” in the U.S. House, and Senator Wyden introduced it in the Senate, where it was designated S. 442. The bill received hearings in both chambers. Cox introduced two updated versions: H.R. 3849, in May 1998; and H.R. 4105, in June 1998, the latter of which passed the U.S. House unanimously in July 1998. [9] Three months later, in October 1998, the Senate passed the companion bill, S. 442, by a vote of 96-2. [10]

The Internet Tax Freedom Act was then added to the omnibus appropriations bill for that year, and signed into law by President Clinton as Titles XI and XII of P.L. 105-277 on October 21, 1998. It is codified at 47 U.S.C. § 151, note.

Prior to the expiration of the law's original ten-year term, Congress extended the Act on multiple occasions. President Barack Obama signed one extension on September 19, 2014, until December 11, 2014; [11] another on December 16, 2014, until October 1, 2015; [12] and a third on September 30, 2015, which extended the Act through December 11, 2015. [13]

Meanwhile, on July 15, 2014, the House passed H.R. 3086, the Permanent Internet Tax Freedom Act, [14] designed to bring an end to the need for extensions by making the Internet Tax Freedom Act permanent. [15] When the Senate took no action on the bill prior to the expiration of the 113th Congress, it was reintroduced as H.R. 235 in the 114th Congress, and the House unanimously approved it on June 9, 2015. [16] The bill was then added to the Trade Facilitation and Trade Enforcement Act of 2015, which passed the House on December 11, 2015 [17] and the Senate on February 11, 2016. [18] President Obama signed it on February 24, 2016, finally making the Internet Tax Freedom Act permanent after nearly two decades. [19] [20] [21] [22]

U.S. Supreme Court Litigation

On June 21, 2018, the U.S. Supreme Court decided South Dakota v. Wayfair, Inc., a case addressing the constitutionality of a state's taxation of ecommerce sales when the seller does not have a physical presence in the state but the buyer lives in said state. In a 5-4 decision, the Court expressly overruled its prior precedent in Quill Corp. v. North Dakota in order to hold that states can tax citizens of other states if they are doing business over the internet. Under Quill and other prior decisions, some physical presence in the state had been required in order for a state to exercise its jurisdiction over nonresidents.

Because the internet reaches into every state, the effect of the Wayfair decision was to expose any person operating a business in a single state to the conflicting sales and use tax rules of thousands of taxing jurisdictions, so long as the business sells via a website — a result the Internet Tax Freedom Act had been meant to avoid. [23] By deciding the case exclusively on constitutional grounds, the Court avoided the statutory issue, but impliedly determined that the Act does not include extraterritorial sales taxes on digital commerce within its definition of banned discriminatory taxes.

See also

Related Research Articles

<span class="mw-page-title-main">Anna Eshoo</span> American politician (born 1942)

Anna A. Eshoo is an American politician serving as the U.S. representative from California's 16th congressional district. She is a member of the Democratic Party. The district, numbered as the 18th district from 2013 to 2023, is based in Silicon Valley, including the cities of Redwood City, Sunnyvale, Mountain View, and Palo Alto, as well as part of San Jose. Eshoo is the only Assyrian-American in Congress and the only Armenian American woman in Congress. On November 21, 2023, she announced she would not seek re-election in 2024.

<span class="mw-page-title-main">Chris Smith (New Jersey politician)</span> American politician (born 1953)

Christopher Henry Smith is an American politician serving his 22nd term as the U.S. representative for New Jersey's 4th congressional district. Though it has taken various forms, his district has always been situated in central New Jersey. Currently, the district contains parts of Ocean and Monmouth counties. Smith is a member of the Republican Party, having switched from the Democratic Party in 1978.

The Internet Tax Nondiscrimination Act was a U.S. federal law that banned Internet taxes in the United States. Signed into law on December 3, 2004, by George W. Bush, it extended until 2007 the then-current moratorium on new and discriminatory taxes on the Internet. It also extended the federal prohibition against state and local Internet access taxes until November 2007.

<span class="mw-page-title-main">United States Chamber of Commerce</span> Lobbying group

The United States Chamber of Commerce (USCC) is a business association advocacy group. It is the largest lobbying group in the United States. The group was founded in April 1912 out of local chambers of commerce at the urging of President William Howard Taft and his Secretary of Commerce and Labor Charles Nagel. It was Taft's belief that the "government needed to deal with a group that could speak with authority for the interests of business."

Internet tax is a tax on Internet-based services. A number of jurisdictions have introduced an Internet tax and others are considering doing so mainly as a result of successful tax avoidance by multinational corporations that operate within the digital economy. Internet taxes prominently target companies including Facebook, Google, Amazon, Airbnb, Uber.

Quill Corp. v. North Dakota, 504 U.S. 298 (1992), was a United States Supreme Court ruling, since overturned, concerning use tax. The decision effectively prevented states from collecting any sales tax from retail purchases made over the Internet or other e-Commerce route unless the seller had a physical presence in the state. The ruling was based on the Dormant Commerce Clause, preventing states from interfering with interstate commerce unless authorized by the United States Congress. The case resulted from an attempt by North Dakota seeking to collect sales tax on licensed computer software offered by the Quill Corporation, an office supply retailer with no North Dakota presence, that allowed users to place orders directly with Quill.

<span class="mw-page-title-main">Erik Paulsen</span> American politician (born 1965)

Erik Philip Paulsen is an American businessman and politician who represented Minnesota's 3rd congressional district in the United States House of Representatives from 2009 to 2019. A member of the Republican Party, he served in the Minnesota House of Representatives from 1995 to 2009 and as majority leader from 2003 to 2007.

Digital goods are software programs, music, videos or other electronic files that users download exclusively from the Internet. Some digital goods are free, others are available for a fee. The taxation of digital goods and/or services, sometimes referred to as digital tax and/or a digital services tax, is gaining popularity across the globe.

<span class="mw-page-title-main">Jeff Duncan (politician)</span> American politician (born 1966)

Jeffrey Darren Duncan is a United States representative for South Carolina's 3rd congressional district since 2011. His district comprises nine counties, two of these counties being manufacturing centers for the state. On January 17, 2024, Duncan announced that he would not run for re-election. Duncan previously served in the South Carolina House of Representatives from 2002 to 2010 when he retired to run for the U.S. House of Representatives.

The Democracy Is Strengthened by Casting Light on Spending in Elections Act, or DISCLOSE Act, is a federal campaign finance reform bill that has been introduced in the United States Congress since 2010. The bill would amend the Federal Election Campaign Act of 1971 to provide for greater and faster public disclosure of campaign spending and to combat the use of so-called "dark money" in U.S. elections.

<span class="mw-page-title-main">Jason Smith (American politician)</span> American politician (born 1980)

Jason Thomas Smith is an American businessman and politician who has been the U.S. representative for Missouri's 8th congressional district since 2013. The district comprises 30 counties, covering just under 20,000 square miles of southeastern and southern Missouri.

The Small Business Job Protection Act of 1996 is a United States federal law. It was sponsored by Rep. Bill Archer (R-TX) and it was signed into law by President Bill Clinton.

<span class="mw-page-title-main">Cyber Intelligence Sharing and Protection Act</span> Unpassed United States bill

The Cyber Intelligence Sharing and Protection Act was a proposed law in the United States which would allow for the sharing of Internet traffic information between the U.S. government and technology and manufacturing companies. The stated aim of the bill is to help the U.S. government investigate cyber threats and ensure the security of networks against cyberattacks.

<span class="mw-page-title-main">Marketplace Fairness Act</span>

The Marketplace Fairness Act was a proposed legislation pending in the United States Congress that would enable state governments to collect sales taxes and use taxes from remote retailers with no physical presence in their state.

<span class="mw-page-title-main">An act to affirm the policy of the United States regarding Internet governance</span> Internet governance

The bill H.R. 1580 (long title: "To affirm the policy of the United States regarding Internet governance") was a bill introduced into the United States House of Representatives in the 113th United States Congress. The bill primarily listed a series of Congressional "findings" regarding the internet, its use, and the way it has been governed. Finally, the bill affirms that "it is the policy of the United States to preserve and advance the successful multistakeholder model that governs the Internet."

<span class="mw-page-title-main">Bruce Westerman</span> American politician (born 1967)

Bruce Eugene Westerman is an American politician serving as the U.S. representative for Arkansas's 4th congressional district. Previously, he served as member and the majority leader of the Arkansas House of Representatives.

<span class="mw-page-title-main">Ending Federal Marijuana Prohibition Act</span> US marijuana decriminalization bills

The Ending Federal Marijuana Prohibition Act is a series of federal marijuana decriminalization bills that have been introduced multiple times in the United States Congress.

<span class="mw-page-title-main">Permanent Internet Tax Freedom Act</span>

The Permanent Internet Tax Freedom Act is a bill that would amend the Internet Tax Freedom Act to make permanent the ban on state and local taxation of Internet access and on multiple or discriminatory taxes on electronic commerce.

<span class="mw-page-title-main">Lawsuit Abuse Reduction Act of 2015</span> Legislation

The Lawsuit Abuse Reduction Act of 2015 is legislation that amends Rule 11 of the Federal Rules of Civil Procedure to require judges to impose mandatory sanctions on attorneys, law firms, or parties who file frivolous "claims, defenses, and other legal contentions." The legislation replaces the current rule, which allows judges' discretion to impose sanctions, and instead forces judges to impose mandatory sanctions prescribed by Congress. It also removes the rule's safe harbor protection, which currently allows attorneys to correct their pleadings, claims or contentions within a 21-day period without fear of sanctions.

South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018), was a United States Supreme Court case that held by a 5–4 majority that states may charge tax on purchases made from out-of-state sellers even if the seller does not have a physical presence in the taxing state. The decision overturned Quill Corp. v. North Dakota (1992), which had held that the Dormant Commerce Clause barred states from compelling retailers to collect sales or use taxes in connection with mail order or Internet sales made to their residents unless those retailers have a physical presence in the taxing state.

References

  1. 1 2 Brief of Chris Cox as Amicus Curiae, pp. 1-2, in South Dakota v. Wayfair, 138 S. Ct. 2080 (2018), https://www.supremecourt.gov/DocketPDF/17/17-494/23030/20171207151532703_Amicus%20Brief.pdf.File:PD-icon.svg+This+article+incorporates+text+from+this+source,+which+is+in+the+public+domain.
  2. "Public Law 105-277, Title XI" (PDF).
  3. Pub. L. Tooltip Public Law (United States)  105–277 (text) (PDF)
  4. Robinson, Sal (October 23, 2013). "Illinois Supreme Court rules against 'Amazon tax'". Brooklyn: Melville House. Retrieved November 7, 2013.
  5. SCHREIBER, SALLY (October 21, 2013). "Internet Tax Freedom Act preempts Illinois click-through nexus law". Durham: Journal of Accountancy. Retrieved November 7, 2013.
  6. By taxing email users one cent per day, the UN estimated it would have collected $70 billion in 1996. James A. Paul & Katarina Wahlberg, "Global Taxes for Global Priorities," WEED Global Policy Forum (March 2002), 18. After the passage of the Internet Tax Freedom Act, the UN abandoned the idea. Nicole Winfield, “UN Distances Itself from Report Recommending Email Tax,” Boston Globe, July 16, 1999. https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=ff93e040f3aa02ec542f81680d1848a54a8c7d5e But the idea surfaced inside the U.N. again a few years later. https://www.cnet.com/news/privacy/u-n-could-tax-u-s-based-web-sites-leaked-docs-show/.
  7. “The Framework for Global Electronic Commerce,” The White House, § I.1 (1998), https://clintonwhitehouse4.archives.gov/WH/New/Commerce/
  8. The effect on U.S. GDP would later be measured. According to the U.S. Bureau of Economic Analysis, the U.S. digital economy for the year 2021 accounted for $3.7 trillion of gross output, $2.41 trillion of value added (translating to 10.3 percent of U.S. GDP, $1.24 trillion of compensation, and 8 million jobs.) https://www.bea.gov/system/files/2022-11/new-and-revised-statistics-of-the-us-digital-economy-2005-2021.pdf
  9. H.R. 4105, Internet Tax Freedom Act, https:// www.congress.gov/bill/105th-congress/house-bill/4105/all-actions
  10. S.442, Internet Tax Freedom Act, https://www.congress.gov/bill/105th-congress/senate-bill/442/actions.
  11. H.J.Res. 124
  12. Consolidated and Further Continuing Appropriations Act of 2015, https://www.congress.gov/113/plaws/publ235/PLAW-113publ235.pdf.
  13. Amendment 2689 to H.R. 719, Consolidated Appropriations Act, 2016, Pub.L. 114–113, 114th Congress, https://www.congress.gov/114/plaws/publ113/PLAW-114publ113.pdf.
  14. Gross, Grant (15 July 2014). "U.S. House approves permanent ban on Internet access taxes". PC World. Retrieved 16 July 2014.
  15. "H.R. 3086 - Summary". United States Congress. Retrieved 15 July 2014.
  16. "H.R.235 - 114th Congress (2015-2016): Permanent Internet Tax Freedom Act". 10 June 2015. "House Passes Permanent Internet Tax Freedom Act (PITFA) to Ban Internet Access Taxes - Press Releases - Judiciary Committee". judiciary.house.gov. Archived from the original on 2015-06-10.
  17. https://web.archive.org/web/20150610180533/http://judiciary.house.gov/index.cfm/press-releases?id=2D7C5C09-0CB9-4E85-BD8B-409059E29C8E. judiciary.house.gov. Archived from the original on 2015-06-10.
  18. "Congress Makes Internet Access Tax Ban Permanent". Forbes. February 11, 2016.
  19. Pub. L. Tooltip Public Law (United States)  114–125 (text) (PDF)
  20. https://www.congress.gov/bill/114th-congress/house-bill/644/all-actions?overview=closed; [ bare URL ]
  21. "Obama's Best Day in Office". Wall Street Journal. February 24, 2016.
  22. "Permanent Internet Tax Freedom Act Signed Into Law". Broadcasting & Cable News. February 24, 2016.
  23. Brief of Chris Cox as Amicus Curiae, p. 3, in South Dakota v. Wayfair, 138 S. Ct. 2080 (2018), https://www.supremecourt.gov/DocketPDF/17/17-494/23030/20171207151532703_Amicus%20Brief.pdf. PD-icon.svg This article incorporates text from this source, which is in the public domain .