The Internet Tax Hostage

There is only one thing in the way of a permanent ban on Web taxes: Sen. Lamar Alexander

Recently we told you that Congress was finally preparing to make permanent the Internet Tax Freedom Act and its ban on email and Internet access taxes. It seems we misjudged the tenacity of the Internet taxers in the Senate.

Sen. Lamar Alexander (R., Tenn.) is leading the Senate dead-enders who are once again holding hostage the popular ban on Internet-only taxes. The House has passed a permanent ban several times, most recently as part of a larger customs bill. But Mr. Alexander and friends are blocking Senate action until Congress also votes on a more controversial measure to give state and local governments more authority to force out-of-state merchants to collect online sales taxes.

Sen. Alexander tells us that his opposition to the Internet Tax Freedom Act is a “simple matter of federalism,” and that it’s “none of Washington’s business” whether states and localities want to apply new taxes online. The Senator is mis-defining federalism to justify more taxing.

The Internet is the quintessential instrument of interstate commerce, and under the U.S. Constitution it is Washington’s business whether state and local governments impair such commerce. One of the reasons the Founders abandoned the Articles of Confederation in favor of the Constitution was to prevent local jurisdictions from placing unbearable tax and regulatory burdens on commerce crossing their borders.

“An unrestrained intercourse between the States themselves will advance the trade of each by an interchange of their respective productions,” wrote Alexander Hamilton in Federalist 11. “The veins of commerce in every part will be replenished, and will acquire additional motion and vigor from a free circulation of the commodities of every part.”

Following Hamilton, Congress first passed the Internet Tax Freedom Act in 1998 because America’s 9,600 taxing jurisdictions pose a mortal threat to this engine of innovation. At a House hearing in 1997, Wade Anderson, an official with the Texas Comptroller of Public Accounts, revealed the state’s longstanding intention to tax email and he claimed that any online transaction routed through a server in Texas would be taxable there.

Given the packet-switched architecture of the Internet, and the fact that any communication can bounce through a multitude of states and localities, Congress decided to ban taxes on email and Internet access as well as multiple and discriminatory taxes. In other words, state and local politicians could not place burdens online that did not exist off-line. It is a simple and effective policy that is consistent with the letter and spirit of the Commerce Clause.

More From The Wall Street Journal (subscription required):