Will Internet Tax Freedom Act Expire in 8 Days?

Back in September, Congress passed a continuing resolution that pushed the expiration of the Internet Tax Freedom Act (ITFA) to December 11, 2014. It's been a fascinating lesson in politics to see what's happened over the previous eighteen months leading up to this looming deadline.

Let me outline some of the highlights:

• In May, 2013, the US Senate passed legislation that would allow states to force remote sellers to collect sales tax from their customers. This legislation is known as the Marketplace Fairness Act (MFA) and was disguised as the “Internet sales tax”. In reality, the bill does not refer to the Internet or to the Web rather it refers to “remote sellers” which is any business that makes a sale that does not have traditional sales tax nexus. Said differently, anyone that makes a sale would be subject to the collection of sales tax – not just Internet e-tailers.

• In September, 2013, the US House released a set of principles by which MFA and any potential derivative of MFA should be debated. This spawned conversations and testimony about alternative options to the MFA. The House has not passed any legislation in this area.

• Separately, in July, 2014, the US House passed legislation that would permanently extend the Internet Tax Freedom Act (ITFA). The ITFA bans the taxation of Internet access charges (except in the couple of states that were grandfathered) and also bans federal, state, and local governments from assessing multiple or discriminatory taxes on electronic commerce. This legislation has widespread bipartisan support unlike MFA.

• The US Senate then saw an opportunity to combine the widely popular ITFA with the less popular MFA and combined them into one piece of legislation. This legislation has stalled somewhat and an extension of ITFA was passed through December 11, 2014.

What will happen next as the ITFA extension is set to expire?

I suspect ITFA will be separated from MFA, voted on by the US Senate, and passed by the US Senate and eventually by the President. I think the MFA will continue to be debated but it seems to have lost its steam, especially with a Republican run House and Senate. I suspect MFA or some derivative will be passed but is unlikely to happen in the immediate future.