The Internet Tax Freedom Act of 1998 placed a moratorium on state and local taxation of Internet access and on discriminatory taxes on emails and other electronic data. The moratorium is set to expire in 2014, but some members of Congress are proposing to make it permanent.
Introduced by Senators Ron Wyden (D-OR) and John Thune (R-SD), the Internet Tax Freedom Forever Act (S. 1431) would permanently extend the ban on state and local taxation of Internet access service.
Another bill—the Digital Goods and Services Tax Fairness Act—would set up a national framework for the taxation of digital items such as apps, movies, and music, to avoid multiple and discriminatory taxation.
The goal of both bills is to keep states and local governments from piling taxes onto Internet access and digital goods as they have on wireless phone services. The national average tax on wireless service tops 17 percent, more than double the 7.3 percent average tax on other goods and services. In some states, wireless service taxes top 20 percent.
Limiting Taxes, Encouraging Growth
The Internet has become an important economic force, and ensuring affordable access for businesses and consumers is crucial, Wyden said in a statement.
“As the Internet Tax Freedom Act enabled and promoted Internet access and adoption across America, the Internet became a platform to facilitate global commerce, sparking nothing short of an economic revolution,” said Wyden.
Despite the current moratorium, Internet users in some states still pay access taxes on their Internet service provider (ISP) bills. When the Internet Tax Freedom Act was passed, 10 states that already had access taxes were allowed to keep them. These states are Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington, and Wisconsin.
There has been some confusion about which taxes the moratorium would affect. The only taxes prohibited by the moratorium are fees for Internet access, such as broadband or dial-up services. The moratorium does not exempt Internet sales from state sales taxes.
Piling on Phone Bills
Opponents of Internet access taxes argue allowing them could quickly make Internet service provider bills resemble wireless phone bills, with their numerous and high tax burdens. This would reduce the number of persons accessing the Internet, especially among lower-income individuals.
The reaction to the bill from the Internet and telecom industries has been overwhelmingly positive.
“The Internet remains one of the greatest job creators and growth engines for our national economy. The legislation introduced today will provide a permanent and predictable tax environment for businesses to grow, and promote further broadband adoption in all parts of America,” said Tony Russo, vice president for T-Mobile US Inc., in a statement.
Steve Largent, president and CEO of CTIA-The Wireless Association, argues that whereas the current moratorium was important during the early growth years of the Internet, continuing the moratorium is even more important, because Internet service has become so much a part of people’s lives and the overall economy.
‘Reasonable and Permanent Tax Process
“Wireless broadband was in its infancy when Congress passed the Internet Tax Freedom Act fifteen years ago and put the first temporary tax moratorium in place. Today, millions of Americans rely on wireless technology for myriad purposes in their everyday lives, and it’s more important than ever to create a reasonable and permanent tax process on Internet access,” Largent wrote on his blog.
Broadband for America, a coalition of leaders from multiple industries advocating for high-quality access to the Internet for everyone in the United States, indicated its strong support for the moratorium and a national framework for taxation of digital goods.
“Passage of the Internet Tax Freedom Act will ensure that consumers’ access to broadband will continue to be protected from onerous local taxes and fees,” the coalition announced on its Web site.
The coalition added, “The Internet must not be subject to arbitrary taxes on a state-by-state basis, which can discourage adoption, innovation and investment. These measures fit within the federal government’s effective light touch approach to Internet regulation that has encouraged private investment and allowed broadband access, adoption and use to flourish across the country.”
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
