Federal Ban on Internet Access Taxes Looming
As Congress is rounding out its session for 2015, all signs point to a bipartisan agreement in both houses to permanently prevent state and local taxes on Internet access.
The U.S. House of Representatives overwhelmingly passed an omnibus trade bill on Friday, which the Senate is expected to pass on Monday, that includes a permanent extension of the Internet Tax Freedom Act -- a temporary measure first passed by Congress in 1998 that banned state and local governments from taxing the monthly payments that Internet users pay their service providers.
The permanent legislation would not only prevent future taxes on home Internet service, including broadband, but would also phase out taxes on Internet service in seven states, which imposed local taxes on Internet access before the original 1998 bill was enacted. According to CNET, Hawaii, New Mexico, North Dakota, South Dakota, Ohio, Texas, and Wisconsin would have to phase out their taxes on Internet access over the next four years.
Bipartisan support for the bill is strong, with powerful members on both sides of the aisle, with both ranking Finance Committee Democrat Sen. Ron Wyden (Ore.) and former Republican California Representative Christopher Cox coauthoring the original bill. The Internet Tax Freedom Act (ITFA) has received 50 cosponsors in the Senate and 191 in the House.
"I co-wrote the Internet Tax Freedom Act nearly a decade ago to help spur the growth of the digital economy," wrote Sen. Wyden in a statement supporting the bill. "Today online commerce is responsible for hundreds of thousands of jobs. In my view, when you have something that works, that has stood the test of time, you ought to make it permanent."
Not surprisingly, Internet service providers are supportive of the permanent tax ban, which would lower the total cost on monthly customer bills, in some cases and some locations, by hundreds per year.
Verizon public policy SVP Peter Davidson wrote, "ITFA is meant to pre-empt state and local Internet taxes, which are on average 11.5 percent but can be as high as 17 percent in some places. An 11.5 percent tax applied to a $100 monthly data plan would add another $204 to a subscriber's bill over a year." He added, "All in all, broadband subscribers could be on the hook for as much as $16 billion each year just for their ability to access the Internet."
Many business associations are also behind the ITFA. For example, the Latino Coalition, a small-business advocacy organization representing Hispanic business owners, declared this week that "a tax-free Internet is essential for economic growth, development and innovation."
"Any measure designed to protect consumers from unnecessary and harmful fees that impede access to the Internet should be quickly adopted," continued The Latino Coalition's National Executive Director Allen Gutierrez.
Not everyone, however, believes making the ITFA permanent is a positive move. The Retail Industry Leaders Association, representing brick-and-mortar shops nationwide, argued that banning taxes on the Internet further tilts the balance of the marketplace and taxation policy against them.
The ITFA "robs Main Street retailers, the backbone of local economies, of the logical companion to bipartisan legislation to level the sales tax playing field," said RILA's President Sandy Kennedy in a statement this week. "Main Street retailers have long maintained that requiring some businesses to collect taxes while giving others a free pass amounts to little more than a government subsidy."
Despite critics, it appears the moratorium on Internet access taxes will pass Congress by early next week, and as President Obama has previously signed extensions to the ITFA, he is expected to sign the permanent extension as well.
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