Why an Internet Tax Moratorium?

With House passage today, it appears we are well on the way to enactment of a four year extension of a moratorium on state taxes on Internet service charges. Both anti-tax Republicans and Silicon Valley are disappointed that the moratorium wasn’t made permanent. The real question is why it should exist at all.

I was never convinced that the tax ban was needed even when Internet advocates were protesting that state taxes on access fees would nip the infant technology in the bud. But the baby has now grown into a very robust adult and doesn’t seem to require any special protection. Besides, wireless phone service, like other phone services, is taxed up the wazzoo, and the charges don’t seem to have slowed growth. And the argument that a tax moratorium is is needed to get broadband providers to expand their services would be laughable if it weren’t so pathetic. they’ve done a dreadful job under the moratorium that has been in place and they’ll continue to drag their feet during the extension.

At least the anti-tax crowd is being consistent. For the tech industry, this is nothing more than an attempt to keep a place at the trough of federal largesse. The states are free to tax or not tax the sales of all other sorts of goods and services. What’s so special about Internet access?

While I’m on on the subject Congress should also finally act to resolve a 40-year-old dispute over whether state can tax mail-order sales, an argument that has long since spread to online commerce. Congress needs to set rules to prevent sales from being taxed in multiple jurisdictions, but I see no reason why online sales should be taxed differently from sales in brick and mortar stores. Justice Holmes famously said taxes are the price we pay for a civilized society, and somebody has to pay them.

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