Certain states have been greedily eyeballing Internet commerce as a lucrative source of revenue for some time now. Right now, however, Congress’ role in overseeing interstate commerce seems to be preventing them from cashing in. I do not know the exact mechanism which does this, but I think part of it is somehow tied to the temporary moratorium on federal Internet taxation.
But I know it’s one reason why the National Governor’s Association quietly supported H.R. 3125, the Internet Gambling Prohibition Act (you can check out the bill by copying the title into the search bar here). The way that bill was structured, it opened the door for states to stick their noses deeper into interstate commerce than they currently can, ostensibly for enforcement purposes. Critics of the bill pointed out that the leeway granted could eventually be pried open by case law to allow states to begin imposing taxes on commerce originating, terminating, or even electronically passing through their territory. Having attended several hearings on this bill, I can say without hesitation that the argument passed over Congress’ heads like a Sammy Sosa homer.
If you want to see the real death of profit on the Internet, just imagine a worst case scenario, where a purchaser in Florida buys a product in Alaska over the Internet and gets taxed by every state that had a data packet pass through their turf.
Sounds stupid, right? Don’t underestimate Congress on that score. A majority of House members voted for the bill last year, but since it was being tacked onto an appropriations bill as a rider, it needed a two-thirds vote to be included. A similar bill has already been introduced in the 107th Congress.