House Judiciary Committee to vote on Internet tax bill

The House Judiciary Committee will vote on a bill to prevent states and cities from taxing internet access Wednesday. Meanwhile, US companies reportedly have about $2 billion in profits overseas.

On the Hill, a vote on internet tax freedom. The House Judiciary Committee expects to mark up a bill to prevent states and cities from taxing internet access tomorrow. The “Permanent Internet Tax Freedom Act” has bipartisan support in both the House and Senate. State and local internet taxes have been prohibited since 1998, but the tax moratorium expires this November. This bill does not curb the ability of states to tax online retail sales.

Overseas, there are two trillion untaxed dollars. Bloomberg News’ analysis finds that US companies have about $2 trillion in profits kept off shore. Once repatriated, or brought back to the US, the profits would be subject to the US corporate income tax rate of 35 percent. To avoid this many US companies are taking over companies in countries with far lower corporate tax rates:  “Inversions” have grown over the last two decades. They represented an average of 7 percent of overseas transactions worth $250 million or more between 1995 and 2010. Since then, they represent 15 percent of those deals.

But Medtronic says it’s not about the taxes. Minnesota-based Medtronic is the largest US corporation so far to set up an inversion with its $42.9 billion purchase offer for Ireland-based Covidien. With an Irish legal address, Medtronic’s $20.5 billion in untaxed offshore earnings would be accessible without US repatriation and taxation. Medtronic’s CEO Omar Ishrak says the company is not trying to avoid higher taxes: “What we will have is access to the cash generated outside the US. We’ll use that to invest much more aggressively in the US.” Covidien, by the way, is not run from Ireland but from Mansfield, Massachusetts. It incorporated in Ireland in 2009.

On Thursday: an IRS-TPC Research Conference. “Advancing Tax Administration,” a day-long conference on June 19, will explore taxpayer compliance costs and tax administration, innovative enforcement strategies, tax uncertainty and corporate compliance, and taxpayer behavior. If you’re not an IRS employee, register here. If you are, register by email to the NHQ Office of Research. The IRS email link and the link to the event’s live webcast are here.