Last December, Congress supported a moratorium on Internet access taxes by extending the Internet Tax Freedom Act (ITFA), a ban on state and local taxation of the Internet that would inflate the cost of access. Unfortunately, this is only a temporary fix as the legislation is set to expire this October. The original moratorium has been extended four times since it was enacted in 1998, including twice just last year.
The time has come to move toward a more permanent solution so Congress can once and for all get this off the table and guarantee an Internet landscape without the potential of future financial burdens for consumers.
So far, Congress has made promising but slow movement toward passing a permanent act. The Permanent Internet Tax Freedom Act (PITFA, or H.R.3086) legislation, which passed the House last fall, was reintroduced in January of this year. The Senate companion bill, the Internet Tax Freedom Forever Act (ITFFA, or S. 1431), was introduced a month later. If passed, both bills would amend the temporary Internet Tax Freedom Act by enacting a permanent ban on state and local taxes of Internet access and on multiple or discriminatory taxes on electronic commerce.
Impact on Consumers and Broadband Adoption
On average, telephone and voice services are taxed at more than 17 percent, and the average cable and video taxes are about 12 percent. Communications services are taxed at nearly double the rate of sales taxes, which are on average only 7 percent. Taxes on wireless services, as well as on digital goods and services, are also higher than sales taxes.
Internet access taxes can pose a barrier to broadband adoption, considering that cost-related factors are among the most frequently cited reasons for non-adoption. Implementing a permanent solution would address the myriad of taxes that could be applied not only to Internet access, but to a number of other Internet-related activities, including bit, bandwidth, and email taxes.
But again, current movement in Congress on this issue has only passed legislation tagged with expiration dates. In fact, states appear to be moving more swiftly.
State Movement on the Issue
Indiana recently became the first state to permanently ban Internet taxes when it passed SEA 80 on April 23rd. If the federal ITFA is allowed to expire this fall, the state’s existing utilities receipts tax would be applied to Internet services, costing state taxpayers up to $27 million per year. The passage of SEA 80, backed by some of the state’s largest Internet service providers, protects consumers should ITFA expire. Indiana Cable Association Executive Director Joni Hart supports the bill for its potential impact on closing the digital divide. “We know cost is a barrier in broadband adoption, and we want to do everything that we can to make sure the Internet isn’t taxed or excessively taxed at all,” she said.
Other states seeking their own Internet tax bans span the nation, from Florida to Washington.
Last month, the Florida House passed legislation (HB 7141) that would reduce taxes on cell phone and cable TV bills by 3.6 percentage points, amounting to about $470 million in savings for Florida residents if passed by the Senate. Low-income, African American, and Hispanic consumers rely heavily on mobile broadband, and this bill would have a tremendous impact on those groups and their ability to access the Internet. The Florida Senate companion bill (SB110) is currently under review by the Appropriations Committee.
The Washington House has also introduced a bill (HB 2166) that, if passed, would permanently extend the federal ITFA to Washington state. The bill’s primary sponsor, Rep. Gina McCabe, cites the importance of Internet access as an economic booster, and she seeks to protect her state’s most vulnerable residents, as well as small business owners, from prohibitive taxes if the ITFA expires. HB 2166 and its Senate companion bill (SB 6048), were reintroduced April 29th.
The passage of communications services tax cuts across the nation shows some alignment between legislation at the state and national levels – a major breakthrough for this issue given that other states have argued to maintain this regressive stream of revenue.
A Permanent Change to Ensure Access for All
If states’ movement to permanently ban Internet taxes is any indication, this could be the year for the PITFA and the ITFFA – at least, many advocates hope so. In the 17 years since the original passage of the moratorium, demand for Internet access and communications services has grown, and the importance of Internet-related policy is now clear to a broader base of the American public. If passed, the two bills can have a significant impact on maintaining affordable wireless coverage for the millions who have come to depend on these services. They would also keep the nation from putting more financial barriers in place for those who already cannot afford access.
A permanent ban would have a tremendous public interest benefit, and the 114th Congress has the ability – and the duty – to make this happen now, rather than later.