State and Local Governments Dealt a Blow by Congress

State and local governments may have lost a costly battle against federal preemption and any leverage they had over getting online sales tax legislation passed when Congress last week approved a permanent moratorium on state and local governments taxing Internet access.

Senate leaders slipped the permanent moratorium (the Internet Tax Freedom Act) into a trade bill (the Trade Facilitation and Trade Enforcement Act] they approved by a vote of 75 to 20 that President Obama had promised to sign. The moratorium will prevent state and local governments from taxing telecommunications and cable providers, as well as those who access the Internet.

The action was supposed to be part of a deal, under which Senate Majority Leader Mitch McConnell, R-Ky., agreed to bring a pending online sales tax bill (the Marketplace Fairness Act) of similar legislation up for a vote later this year. The MFA would allow states to require out-of-state online retailers to collect sales taxes.

But as the Government Finance Officers Association told members in a post on its website: There’s “no guarantee” that the MFA of a similar bill in the House will move forward.

GFOA said the moratorium would “compromise local governments’ ability to deliver essential services to their communities.”

(Read more: The Bond Buyer Online)

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