Tax-free Internet in Jeopardy, as Tax Moratorium Expires November 1st

November 1, 2007 is the date the Internet tax moratorium is set to expire. The original Internet Tax Freedom Act of 1998 created the tax-free moratorium, which Congress has extended two times. Legislation has been entered into both Houses this year–S. 156 and H.R. 743-by Sen. Ron Wyden, D-Ore., and Rep. Anna Eshoo, D-Cal., respectively, to make this ban permanent.

Many state and local government officials are arguing that this ban on Internet tax is robbing them of funding sources needed to fund their programs. They believe Internet tax revenue will provide necessary funding for health care, education, public safety and other critical services.

However, U.S. Census Bureau data shows that state and local government revenues increased from $1.4 trillion in 1995 to $2.5 trillion in 2005-a 78% increase, compared to inflation which increased by only 22% in the same time period.

According to Fox News, Walter McCormick, president and CEO of the United States Telecom Association, in a recent piece for The Hill, a daily Congressional newspaper made these remarks regarding Internet taxation, “Consider what an Internet tax is actually taxing. It is taxing access to information, to knowledge, to a voice in the democratic process, and to economic opportunity”.

Those who support Internet taxation and lifting the moratorium include Sen. Michael Enzi, R-Wyoming. He believes that not taxing e-commerce and the Internet will lead to the increase of other taxes such as income and property tax to offset the growing loss of sales tax revenue.

A 2003 Washington Post estimate put the total lost state sales tax revenues in the neighborhood of $16 billion for 2003. This amount is certainly currently much higher and will, no doubt, continue to increase rapidly each year, as more and more businesses turn to e-commerce solutions.

Many lobbyists are now pushing for the ability to impose sales tax on Internet shopping, and to levy new monthly taxes on DSL and other connections. The taxing of even email and downloaded applications has even been suggested. If the Internet tax moratorium is lifted, the Information Superhighway could turn into a series of toll roads/clicks for the average American Internet surfer.

Senator George Allen is a proponent of permanent legislation to ban taxes on the consumer’s ability to access the Internet. He introduced “The Internet Tax Nondiscrimination Act (S. 150) to permanently ban Internet taxation.

According to Allen, “The growth of the Internet over the past 10 years has provided greater opportunity for everyone–from the largest multinational corporation to the smallest mom-and-pop start-up business. By giving more people access to knowledge and information, the personal computer and the Internet have empowered tens of millions of Americans as consumers and entrepreneurs, and as citizens in our free society.”

One thing is for sure, November 1, 2007 is an important date for both Internet users and e-commerce companies. Indeed, the very future of American economics and the Internet experience as we know it hang heavily on this vote.