Make the Ban on Internet Taxation Permanent | Citizens Against Government Waste

Make the Ban on Internet Taxation Permanent

The WasteWatcher

Today’s increasingly digital age has surrounded everyone’s lives with constantly connected laptops, tablets, and Smartphones, with quick, easy access to the Internet.  These modern technological achievements are largely due to the fact that since 1992, when the general public first gained access to the World Wide Web, the Internet has been mostly free from government regulation and taxation. 

One of the seminal acts affecting the astonishing growth of the Internet was the passage of the Internet Tax Freedom Act of 1998 (ITFA).  The legislation established a moratorium on Internet taxation for federal state and local governments, including Internet access charges; taxes on dial-up services, cable, digital subscriber line (DSL), satellite and wireless Internet; “bit taxes” or taxes on the amount of data streamed over the Internet; and taxes on online services such as email or instant messaging.  Additionally, ITFA also prohibits discriminatory Internet-only transaction taxes for consumers and vendors who buy and sell over the Internet.  The imposition of any of these taxes would have created unfair burdens on the information technology (IT) industry and discouraged many Americans from using the Internet, especially the purchase of goods and services. 

In 2001, 2004 and 2007, the Internet tax moratorium was extended.  However, on November 1, 2014, the moratorium expires, opening the door for taxation by federal, state and local governments.   Ten states are exempt from the moratorium, having already imposed taxes on Internet access prior to the 1998 passage of the law.

Following enactment of the ITFA and subsequent extensions on the Internet tax moratorium, the Internet has grown to 2.3 billion users; reaching almost two billion more users than before the law was passed.  The U.S. Census Bureau estimates that in the third quarter of 2012, U.S. retail electronic commerce sales reached $57 billion.  In addition, the law has provided the flexibility to the Internet industry to expand services enjoyed by their customers to include such options as high speed broadband capability, mobile Internet connections and cloud computing services.

On August 27, 2012, CAGW reported on a proposal by the Federal Communications Commission (FCC) to impose fees or taxes on Internet service as a means to expand the Universal Service Fund into the Connect America Fund intended to bring broadband services to Americans not currently connected to the Internet as part of the National Broadband Plan.  While a September 10, 2012 Yahoo News! article indicates that the FCC has pulled back from that position, there is still a possibility that the Internet will again come under the scrutiny of revenue seekers once the moratorium expires.

Rather than continuing the Internet tax moratorium when it expires, the ban should be made permanent.  This certainty is critical as increasing numbers of Americans access the Internet and broadband access continues to expand under the National Broadband Plan. 

The Internet should not become a cash cow for government officials.  The Internet has become a vital part of the global economy and keeping its use tax-free is essential for economic growth.  As the world becomes more digitally-focused, enacting a permanent ban will provide much-needed consumer and business confidence. 

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