Small Businesses Plead For Permanent Tax Ban

As the November expiration date nears for a ban on some forms of Internet taxation, almost everyone on Capitol Hill is getting into the debate. The House Committee on Small Business took a look at the issue yesterday, hearing testimony from online mom-and-pop shops that are urging Congress to enact a permanent ban on discriminatory and access taxes.

Affordable Internet access — free of the kind of taxes that inundate a typical phone bill — is important to many segments of the economy. But for small businesses, it could be a matter of survival, Brett Dewey, CEO of Los Angeles-based e-tailer, told the committee during yesterday’s hearing.

“Right now, like many small online retailers, we’re down,” Dewey said in his testimony. “We are taking steps to improve sales, and I’m optimistic that we’re headed for another ‘up,’ but a new tax right now would be devastating.”

First enacted in 1998 and extended in 2001 and 2004, the ban on Internet access and discriminatory taxes does not preclude states and cities from imposing sales and use taxes. Instead, it bans access taxes, as well as multiple and discriminatory taxes that would impose a higher levy on online transactions than on brick-and-mortar transactions.

Dewey described to lawmakers how he would expect a reversal in this policy would damage his business. With five full-time employees and plans to add eight seasonal employees during the holiday rush, could face dire prospects, he said. The fear is that without a federal ban, state and local governments would impose a patchwork of taxes on Internet access and transactions, increasing the price of Internet connectivity and the cost of tax compliance.

“Our options would be to lay off employees, stop providing the health insurance on which our employees’ families rely or close our doors,” he told lawmakers.

While there’s little sympathy in Congress for unleashing state and local governments to begin imposing a patchwork of new taxes on the Internet, there remains considerable disagreement over whether the ban should be extended or made permanent.

There is more vocal support for making the ban permanent this year than in previous terms. Top-ranking Republicans have called for a permanent ban, as have administration officials including the secretaries of the Treasury and Commerce departments. However, Senate Majority Leader Harry Reid recently said that he supports an extension, while committee chair Rep. Nydia Velazquez, D-N.Y., said new Internet access taxes could raise small businesses’ Internet bills by 15 to 30 percent.

At today’s hearing, Brian Bieron, senior director for Federal Government Relations at eBay, told lawmakers that an estimated 720,000 small businesses use eBay to market their goods — and would suffer should access taxes be enacted.

“Mega-retailers have been relentlessly pressuring small business retailers for decades,” Bieron said, calling for a permanent ban. “If taxes on Internet access go up, fewer small businesses will use the Internet. More importantly, fewer consumers will use the Internet. And for the small businesses using the Internet, that means fewer sales and less opportunity to compete with the mega retailers.”

The main opposition to making the tax ban permanent comes from state governments, but at today’s hearing, Raymond Keating, chief economist at the Small Business and Entrepreneurship Council, downplayed the states’ predicament.

“State and local revenues have been accelerating at some three times the rate of inflation,” Keating told the committee. “So, the notion that state and local governments need to extract even more money from taxpayers is very difficult to accept.”

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