As State Tax Today reported recently, U.S. Senators Ron Wyden, D-Ore., and John Thune, R-S.D., introduced legislation to make permanent the ban on state and local jurisdictions taxing Internet access. This will turn the Internet Tax Freedom Act into the Internet Tax Freedom Forever Act (get it?). I do not like taxes. But come on. We are still trying to give a special tax break to the Internet? The original Internet Tax Freedom Act was enacted in 1998. It was terrible policy then, it is worse policy now. The act was renewed three times and is set to expire in 2014. Basically, the act forbids state and local governments from imposing taxes on Internet access. The high tech industry was behind the original act. Everyone who was selling or planning on selling services over the Internet lined up in favor of limiting state taxing authority. Their argument at the time was that the Internet was an infant industry and needed protection and nurturing. That was hogwash of course. No one really believed that imposing a sales tax on Internet access would deter people from going on-line. Wyden and Thune cannot use the infant industry argument anymore. Their new argument is that the Internet is an economic engine that needs protecting from the jaws of government taxation. They are actually arguing that the Internet is so important its access should not be taxed. Can't we make the same argument for energy? Agriculture? Manufacturing? It is a silly argument. In fact, the argument that the Internet needs protecting from government is even less valid today than it was in 1998. And it was not valid then. Neither the politburo in Red China nor the mullahs in Iran have been able to stop the Internet. Yet, Alabama's 4 percent sales tax might?
The Federation of Tax Administrators and National Conference of State Legislators courageously opposed the original law. I hope they do so again. The federal government should not interfere with state taxing authority. More importantly, there is no tax or economic reason for exempting internet access from tax. It represents the purchase of a service, like auto repairs, tattoos, or dog grooming. The Internet is not going to collapse if it is taxed. Wyden and Thune are merely doing the bidding of the Internet providers. That kind of cronyism represents all that is wrong with modern tax policy.