After nearly two decades of temporarily extending a moratorium on state and local taxation of Internet access, an amendment making the Internet Tax Freedom Act (“ITFA”) permanent passed the Senate yesterday and is on its way to President Obama’s desk. If signed by the President, the legislation will eliminate the sunset provision from Section 1101 of the ITFA, making the moratorium permanent. The Permanent Moratorium on Internet Access Taxes and on Multiple and Discriminatory Taxes on Electronic Commerce (“Permanent ITFA”) passed as part of a larger trade facilitation and enforcement bill.

In addition to making the moratorium permanent, the Permanent ITFA will eliminate the grandfather clause that had permitted some states to tax Internet access if the tax predated the moratorium. Those grandfathered taxes would be required to end by June 30, 2020.

A vote on the legislation, which passed the Senate on a 75-20 vote, cleared its final hurtle when several Senators who wanted to tie the Permanent ITFA to the Marketplace Fairness Act (“MFA”) secured an agreement from Majority Leader Mitch McConnell to schedule a vote on the MFA later this year.  The MFA would permit states to require a seller to collect and remit sales and use taxes with respect to remote sales sourced to a state. Current versions of the MFA include a small seller exception for a seller with less than $1 million in total gross annual receipts from remote sales in the U.S in the previous calendar year.

If you have any questions regarding the impact of the ITFA or state sales and use taxes on your business, please contact Allison D. Rule at adr@commlawgroup.com.