Tax Reform

Stopping Discriminatory Taxation of Internet Access

While the gridlock in Washington, D.C. continues to frustrate many Americans, federal policymakers have a golden opportunity to send hardworking American taxpayers an important victory during this holiday season. Congress is currently considering the Permanent Internet Tax Freedom Act (PITFA), as widely approved by the U.S. House of Representatives earlier this year on a bipartisan basis.

PITFA would make permanent the Internet Tax Freedom Act (ITFA) which was extended multiple times over the last 17 years.  ITFA was first signed into law in 1998, and was bipartisan from the beginning – being sponsored by Congressman Chris Cox (R-CA) and Senator Ron Wyden (D-OR).  Originally intended to be permanent, but negotiated to be temporary, ITFA places a moratorium on federal, state and local taxes on Internet access and also prohibits multiple or discriminatory taxes on electronic commerce.

If ITFA were allowed to expire, consumers would bear the costly result. The American Action Forumreleased an analysis earlier this year showing the cost to taxpayers would be $16.4 billion annually.  Without the moratorium in place, consumers would have their broadband access subjected to a wide variety of the discriminatory taxes and fees that are already slathered onto traditional communications services.  These taxes are generally much higher than the rates of traditional retail sales taxes, just shy of 18 percent on average and soaring as high as 25 percent in some places.  Scott Mackey, a partner at KSE Partners LLP has estimated a typical household would pay $50 to $75 more in taxes every year without ITFA protection. And the damage to taxpayers could grow. According to Mackey, “I would say there is an unknown but significant number of states where…the tax department could write a new rule” to require and collect new taxes.

As Representative Anna Eshoo (D-CA) recently explained, “Without another renewal from Congress, the doors to discriminatory taxation on Internet access by approximately 10,000 different state and local taxing jurisdictions will be blown open. These entities have every intention of creating new tax revenue for their jurisdictions from Internet subscribers.”

For years, members of the American Legislative Exchange Council have been supportive of efforts to protect hardworking taxpayers, encourage innovation and prevent discriminatory forms of taxation. For all of the reasons above, ALEC has maintained model policy calling for a Permanent Internet Tax Freedom Act.

As we near the end of the year and start to reflect on all of the things for which we should give thanks, let us hope that policymakers in Washington give taxpayers much-needed, permanent protection from discriminatory Internet taxes.

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

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