WASHINGTON — The National Conference of State Legislatures is urging members of Congress to postpone extending or making permanent the moratorium on state and local governments taxing Internet access until or they pass legislation that would allow states to require out-of-state online retailers to collect sales taxes.
NCSL made this request in a letter sent on Wednesday to leaders of the House and Senate -- House Speaker John Boehner, R-Ohio, House Democratic Leader Nancy Pelosi, D-Calif., Senate Majority Leader Mitch McConnell, R-Ky., and Senate Minority Leader Harry Reid, D-Nev. The letter was signed by four NCSL officers: president Curt Bramble, vice president Deb Peters, president-elect Mike Gronstal and immediate past president Debbie Smith.
The moratorium on state and local governments taxing Internet access taxes was created by the Internet Tax Freedom Act, which was initially enacted in 1998 and has been extended several times. The moratorium is set to expire on Oct. 1.
“If extended or made permanent, ITFA would exacerbate the federal government's infringement of state budget sovereignty and would annually cost states hundreds of millions of dollars,” NCSL wrote. The group requested that if Congress extends the moratorium, “it must do so while recognizing that the technology that empowers the Internet is the same technology that allows for the seamless collection of sales taxes on remote transactions.”
Getting legislation enacted that allows states to compel remote sellers, such as out-of-state online retailers, to collect their sales taxes is major priority of NCSL and other state and local government groups. Currently, states can only require retailers to collect their sales taxes if the retailers have a physical presence in their states. Consumers are supposed to pay use taxes on their purchases from out-of-state online retailers. However, customers rarely pay those taxes, and the requirement to pay them is usually not enforced.
“Congressional action is needed to address the price advantage afforded to online retailers over their main street counterparts, who, in addition to following their state's registration and other business requirements, dutifully collect and remit sales taxes,” NCSL wrote. “Conversely, many online sellers, which often fail to even properly register or collect taxes in the states where they have physical presence, enjoy a price advantage for not having to collect applicable sales tax.”
Without passage of online sales tax legislation, states in the near future will have to move from systems that tax consumption to systems that mainly tax income and property, NCSL added.
Online sales tax bills are pending in both the House and the Senate. The bill in the House, the Remote Transactions Parity Act, and the bill in the Senate, the Marketplace Fairness Act, both have bipartisan support. NCSL is urging Congress to not consider legislation to extend the ITFA before considering legislation like the RTPA and the MFA, which both “would allow states to collect taxes they are already owed on remote transactions.”
