House votes to permanently ban tax on Internet access fees

With the temporary tax ban related to Internet access fees due to expire Nov. 1, Congress appears set to make the ban permanent. The House of Representatives voted in favor of the ban this week, and the Senate is expected to soon follow suit, Washington observers say. “The expectations are that the ban will be made permanent,” says John Logan, tax specialist with CCH Inc., publisher of tax and legal information. The vote does not affect sales tax.

There are a few discrepancies in the House and Senate versions of the legislation that could leave some exceptions to the ban, Logan adds. The Senate bill would allow about eight states to continue imposing tax on Internet access fees because their state tax laws regarding Internet taxes pre-dated the temporary ban, which was imposed in 1998. Those states, including Wisconsin, South Dakota and Texas, have been allowed to tax Internet access throughout the temporary ban. Before final legislation can be signed into law by the president, the two houses of Congress will have to reconcile their differences, Logan says.

Diane Hardt, a tax administrator for Wisconsin, says her state collects more than $20 million a year through its tax on Internet access fees. But a bigger concern, she adds, is the effort by states to get federal authority to impose sales tax on products and services sold through the web–-which would amount to about $150 million a year for Wisconsin, she says.

Hardt is also co-chair of the Streamlined Sales Tax Project, a group of more than 30 states working toward common Internet sales tax measures designed to create a simplified system for the interstate collection of Internet sales tax. With about 10 states having approved common measures, she says, the SSTP hopes Congress will consider legislation this fall that would authorize participating states to force online retailers to collect sales tax from each customer, whether or not they have a physical presence in the customer’s state. Under existing federal law, online retailers are only required to collect sales tax in states where they have some physical presence such as stores or warehouses.