Most of us take Internet access for granted. Sure, we complain about our network speeds sometimes, but we take for granted we’ll have access wherever we go. Today’s college freshmen have probably never known a world without it. Odds are we consider access more of a right than a privilege, but what if we had to pay the government for the privilege of going online? Once prohibited by law, such a tax is now a possibility.

The History and Future of Taxing Online Access

In 1998, President Clinton signed the Internet Tax Freedom Act, which placed a moratorium on taxing the Internet. The idea behind the bill was that government shouldn’t tax access to the Internet, and the idea has enjoyed bipartisan support. President Bush signed extensions to the bill in 2001, 2004, and 2007.

The 2007 moratorium expired November 1 of this year, meaning states now have the opportunity to tax your access to the Internet. Many states already tax your phone and satellite TV, so don’t assume such a thing could never happen. It’s already legal in eight states that had such laws in place prior to the 1998 federal law, but now the number of states taxing Internet access could grow. The Permanent Internet Tax Freedom Act would permanently extend the original bill, as well as eliminate the grandfather clause for the eight states where it’s currently legal to assess an Internet tax. This bill passed a voice vote in the House of Representatives in July, and is now up for consideration in the Senate.

Online Purchases Could Get More Expensive, Too

That bill isn’t the only proposal regarding Internet taxation. As e-commerce became more viable, individual states began to see the potential for sales tax revenue. However, only the federal government has the power to regulate interstate commerce, and a 1992 Supreme Court decision ruled an online seller in one state doesn’t have to collect sales tax from a customer in another state. Today, this ruling means you’ll only have to pay sales tax from online purchases you order from a company with a significant presence in your home state.

Notice I said “collect” sales tax. Out-of-state retailers aren’t obligated to collect sales tax on purchases you make, but consumers are still supposed to report and pay sales tax for any online purchases. Enforcing that requirement under current law is essentially impossible, and I’m as likely to voluntarily report online sales tax information as I am to swim with alligators.

Why Change the Law Now?

For years, brick and mortar retailers have argued that it’s unfair that they have to collect sales tax from their customers while many online retailers don’t. Of course, online retailers respond that because they have to charge for shipping, a lack of online tax makes the burden to the customer relatively equal overall. It’s an argument that won’t end anytime soon.

Some experts are saying now may be the most likely time for passage of an online sales tax bill known as the Marketplace Fairness Act. This act would allow individual states to collect sales tax from online purchases from companies outside their borders; the Senate passed it in 2013, but the House of Representatives has not. With a new congress less likely to favor Internet taxation in session this January, those in favor of the bill see the next two months as their best chance for success. Texas Senator Ted Cruz, who opposes the bill, said, “One of my greatest concerns… is that we could see leaders in both parties pushing through a nationwide Internet sales tax.”

For good reason, most politicians are wary of voting for new taxes, but many are also unlikely to overlook a new source of potential revenue to pay for their favorite programs. Similarly, few consumers are likely eager to pay another tax or two when it affects us, but some will be willing to do so to avoid spending cuts. How about you — should Internet access itself be beyond the reach of the IRS? Would taxes aimed at more expensive, faster network plans slow the adoption of high-speed Internet? And do online sales taxes create fair competition, or slow the growth of e-commerce?

What to Do About It?

Throwing our modems into the harbor probably isn’t the answer, though if it’s a dial-up modem, I suppose there’s no better use for it. If Internet usage is going to get more expensive in 2015, now’s the time to offset that cost with a different plan. Enter your zip code below to see if you can find a new plan at a better price than you’re currently getting.

Source/Flickr – Philip Taylor


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