Marketplace and Internet Tax Fairness Act Introduced in U.S. Senate


A previous edition of the Legislative Update contained an article about the introduction of federal legislation (H.R. 3086) that would permanently ban Internet taxing authority at the state and local levels.  A recently introduced Senate bill would improve on that harmful bill.

The League was primarily concerned with a provision in H.R. 3086  that would cancel a “grandfathering” provision that allows 10 states, including Texas, to continue pre-existing taxes on Internet access.  The State of Texas, and Texas cities, currently apply sales taxes to Internet access charges that exceed $25 per month.

On July 15, the House of Representatives passed H.R. 3086. The bill was passed despite the opposition of Texas Representatives Joe Barton and Shelia Jackson Lee. The two representatives voiced their concern that the lack of a grandfather provision would have a significant financial impact on the State of Texas and Texas cities. The net effect of the bill, if it becomes law, on the State of Texas would be a $280 million loss per year, and a $51 million per year loss for Texas cities.

The same day the House passed H.R. 3086, a bipartisan group of U.S. Senators introduced S. 2609, the “Marketplace and Internet Tax Fairness Act.” S. 2609 would extend the temporary ban on state and local Internet taxes for another 10 years to 2024, but it would also reinstate the grandfather provision for the same amount of time. In other words, Texas cities would continue to receive sales tax revenue from Internet access charges under S. 2609 as it is currently written.

Interestingly, S. 2609 combines the beneficial Internet taxing authority language with the entirety of the Marketplace Fairness Act, legislation that has failed to pass in recent legislative sessions.  The legislation would give states the authority to compel most online retailers to collect sales taxes at the time of sale, regardless of the location of the retailer. (Under current law, states cannot require a business to collect and remit sales and use taxes to a state if it has not established a physical presence in that state.) 

S. 2609, as currently written, represents a significant improvement over H.R. 2086 as passed by the House. Not only would S. 2609 preserve city sales tax revenue derived from Internet access charges (which H.R. 2086 does not), it also would increase city sales tax revenue collected from online retailers, many of whom do not pay state and local sales taxes under current law.  Texas city officials are urged to express their support for S. 2609 as a better alternative to H.R. 3086.

The full text of S. 2609 is available here


TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.

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