United States

Federal: Internet Tax Freedom Act Extended until October 1, 2016

Dec 21, 2015
From KPMG TaxWatch

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On Friday, December 18, 2015, as part of the omnibus appropriations bill, Congress voted to extend the Internet Tax Freedom Act (ITFA) until October 1, 2016. The Internet Tax Freedom Act was originally enacted in 1998 as a three-year moratorium preventing state and local governments from taxing Internet access and from imposing multiple or discriminatory taxes on electronic commerce. The act included a grandfather clause allowing state and local governments to continue taxing Internet access, provided the tax had been imposed and enforced before October 1, 1998. Both the moratorium and grandfather clause have been extended until October 1, 2016.

Since its enactment, the ITFA has been extended numerous times. Until 2014, the extensions were often for years at a time. More recently the extensions have been tied to short term funding bills and often last for only months or days at a time. For example, there have been three short-term extensions this year alone.

In addition to temporary extensions, there have been recent attempts to make the ITFA permanent. Most recently, on December 11, the House passed a bill that would make the ITFA moratorium permanent and have the grandfather clause expire on June 30, 2020. The language was added to a customs enforcement bill by a conference committee after the bill had already passed the House and Senate. While the House agreed to the addition, a Senate vote has been postponed until early next year.

Some Senate leaders strongly prefer that a permanent ITFA be tied to legislation allowing states to require remote sellers to collect tax on sales made into the state (e.g., the Marketplace Fairness Act or Remote Transactions Parity Act). These Senators criticized how the ITFA was “airdropped” into the customs bill and delayed a vote by threatening to strip the ITFA language from the bill using a procedural move if it was brought to the floor for a vote. 

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.