Markups & Meetings

2141 Rayburn House Office Building

Markup of H.R. 3086, the “Permanent Internet Tax Freedom Act”

The historian Paul Johnson called the 1862 Homestead Act “one of the most important laws in American history.” Land was the principal driver of wealth. By making it available, cheaply, to anyone willing to work hard, the Government created an unparalleled engine of upward mobility.

This bears on today’s markup of H.R. 3086, the Permanent Internet Tax Freedom Act (PITFA), because the Internet is the new frontier and medium of opportunity.

Everyone in Silicon Valley knows Max Levchin’s story. He came to America from the Soviet Union at age 16. His family had $300 dollars in their pocket and he learned English by watching an old TV set he hauled out of a dumpster and repaired. Ten years later, he sold PayPal, for $1.5 billion.

The Internet is a meritocracy. It does not care how you look or where you come from. It offers opportunity to anyone willing to invest time and effort. It is the greatest gateway to knowledge and engine for self-improvement that has ever existed.

That is precisely why Congress has worked assiduously to keep Internet access tax free.

In 1998, Congress temporarily banned state and local governments from taxing Internet access or placing multiple or discriminatory taxes on Internet commerce. With minor modifications, this ban was extended three times, with enormous bipartisan support. In the entire history of these extensions, only five “no” votes were ever cast in the House and Senate.

The most recent extension passed in 2007, but it expires on November 1, 2014. PITFA would extend this moratorium and make it permanent by simply striking the 2014 end date.

If the moratorium is not renewed, the potential tax burden on consumers will be substantial. The average tax rate on communications services in 2007 was 13.5%, more than twice the average rate on all other goods and services. To make matters worse, low income households pay ten times as much in communications taxes as high income households, as a share of income.

The original moratorium included a grandfather clause to give states that were then taxing Internet access some time to transition to other sources of revenue. Some have discontinued taxing Internet access in support of a national broadband policy. For those that still haven’t, it has been sixteen years, time enough to change their tax codes. Thus, PITFA eliminates the grandfather clause in current law in order to make the moratorium consistent nationwide.

It is important to note that PITFA does not address the remote sales tax issue. It merely prevents Internet access taxes and unfair multiple or discriminatory taxes on e-commerce, whether inside the taxing state or without.

This ban is consistent with the original intent of the Commerce Clause, which the Supreme Court describes as a cure for the ills of the Articles of Confederation under which “state taxes . . . hindered and suppressed interstate commerce.”

While there are a number of tax bills in Congress, the House and Senate should pass a stand-alone PITFA as soon as possible. In the past, the moratorium has lapsed and been extended retroactively, but this time around, the consequences of a lapse would be worse. There are many more Internet users today and the scope of the moratorium has become broader as the result of some of the more recent extensions. Any lapse would be felt more widely and acutely and refunds would be more difficult to administer.

The Judiciary Committee is acting today to ensure that Americans can access the scientific, educational and economic opportunities the Internet offers, tax free, in order to better their lives, improve society and grow the economy. I encourage the Members of this Committee to support this important, bipartisan bill.

I would also like to specifically thank Mr. Chabot and Ms. Eshoo, Subcommittee Chairman Bachus and Subcommittee Ranking Member Cohen for their work on and support of this legislation.

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