Internet Freedom Comes Under Attack

Senator Michael Enzi (R-WY) has introduced the Marketplace and Internet Tax Fairness Act (MITFA) aiming to shove the controversial Marketplace Fairness Act (MFA) through Congress by risking passage of the widely agreed upon Internet Tax Freedom Act (ITFA). Supporters of Internet freedom, including Americans for Tax Reform and Digital Liberty, have sent a letter to Congress restating the problems with MFA and imploring them to separate the discussion of ITFA and MFA.

Internet usage taxes, prohibited by ITFA, and an Internet sales tax, promoted by MFA, are distinctive issues that must be addressed on their own. Permanent extension of ITFA has widespread support and should be passed before November elections. Action regarding an Internet sales tax, an issue drawing more debate, should not hold ITFA hostage. Refraining from combining these topics will ensure the continued ease, success, and innovation that have made the Internet a central driver of both our lives and our economy.

Congressmen on both sides of the aisle agree that an Internet tax is a restrictive measure that will inhibit a free market and the innovation that the Internet provides. Originally passed in 1998 and since extended three times, ITFA has allowed the Internet to grow and prosper. Further proliferation of the Internet can be encouraged by extending ITFA permanently. The Internet was created as a means of free communication and exchange of ideas, goods, and services. Regulating Internet use through a tax will impede the continued development of such expression and improvement. If previous regulation of industry (water, electricity) tells us anything, we know that government intervention does not promote successful innovation. Clearly ITFA should be extended permanently.

While the permanent extension of ITFA is an obvious necessity, the issue of sales tax concerning out-of-state sales over the Internet is a different and far more contested issue. MFA (S. 743) passed the Senate in May 2013 but has been held up in the House due to concerns over tax hikes and the sovereignty of states. MFA seeks to give states cross-border tax authority for businesses located outside their jurisdiction, effectively letting each individual state impose their tax ideology on any of the other 49. Previously, states have been protected from the fancies of out-of-state tax collectors through the “physical presence standard.” This standard controls the regulatory power of each state by not allowing it to spread beyond its borders. The MFA would complicate interstate tax interactions by forcing companies to reconsider the tax regulation that would stem from doing business in 50 different states.

These are undoubtedly two separate issues. The permanent extension of ITFA has a large following, while consensus over MFA is split. In order to tip the scales on the MFA question, Senator Enzi and his co-sponsors have added ITFA to the equation in order to produce MITFA, a complicated merger of two separate issues. MITFA would only extend ITFA ten years, at which point its lengthening would once again be used as a political bargaining chip. Senator Enzi and his supporters seek to raise taxes through MFA by latching it onto the extremely important ITFA. Defenders of Internet freedom need to remain steady in their demand that these issues be faced apart from each other.

Americans for Tax Reform and Digital Liberty urge Senators and Representatives to pass a clean permanent extension of the Internet tax moratorium before November 1st.