Congress Agrees to Short-Term Extension of Internet Tax Freedom Act

The Internet Tax Freedom Act, which prevents states from taxing Internet access and from enacting multiple or discriminatory taxes on electronic commerce, has been extended through Dec. 11, 2015.

On Sept. 30, 2015, President Obama signed H.R. 719, known as the Continuing Appropriations Act of 2016 (P.L. 114-53), which provides short-term spending appropriations for federal agencies. Pursuant to Section 127 of that bill, the provisions of the Internet Tax Freedom Act (ITFA) were extended until Dec. 11, 2015.

ITFA was first enacted in 1998 (codified at 47 U.S.C. 151 note) and temporarily prohibited states from taxing Internet access and from enacting multiple or discriminatory taxes on electronic commerce. [1] ITFA was extended in 2001, 2004, 2007 and most recently in 2014 when President Obama signed H.R. 83, extending ITFA through Sept. 30, 2015. Thus, without the current extension, ITFA would have expired, and states would have been free to tax Internet access.

At the time ITFA was first enacted in 1998, some states, such as Texas, already imposed sales tax on Internet access charges. Those states were grandfathered under ITFA and thus are permitted to continue enforcing those Internet access taxes.

Currently, there are two bills in Congress that would permanently ban taxes on Internet access and multiple and discriminatory taxes on electronic commerce. In the House of Representatives, H.R. 235 was introduced on Jan. 9, 2015, passed the House on June 9, 2015, and was received by the Senate and referred to Committee on Finance on June 10, 2015. A similar bill, S. 431, was introduced in the Senate and referred to the Committee on Finance on Feb. 10, 2015.

In anticipation of ITFA’s potential expiration, Kansas and D.C. issued guidance in September that Internet access is not subject to those states’ sales and use taxes and that an expiration of ITFA won’t affect taxation of Internet access. [2]

Many federal laws impact state and local taxation, some of which have been discussed in prior issues of the newsletter. HA&W’s SALT team will continue to monitor developments with ITFA and provide any updates in future issues of the SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of HA&W’s SALT practice, at [email protected] for more information.

[1] This is the current version of ITFA except that in Section 1101(a), the date Dec. 11, 2015 is substituted for the date Nov. 1, 2014.

[2] Kansas Opinion Letter No. O-2015-001 (issued Sept. 16, 2015) and D.C. Office of Tax and Revenue Notice No. 2015-05 (issued Sept. 24, 2015).

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding this matter.