To tax or not to tax internet connections? We asked that in 2000


The FCC is looking at imposing taxes on broadband connections to pay for broadband connections. Hillcon Valley describes the situation succinctly…

The Federal Communications Commission is eyeing a proposal to tax broadband Internet service.

The move would funnel money to the Connect America Fund, a subsidy the agency created last year to expand Internet access.

Some folks support the idea; Extreme Tech highlights a few…

Agency officials claim many as 18 million more Americans could gain broadband access over the next decade as a result of the new tax. With 19 million currently without broadband service, that means nearly the entire nation would be covered by high speed access by 2020.

The fee has some high profile supporters. Major technology companies — including AT&T, Sprint, and Google — have already expressed support for the idea. These companies obviously stand to gain from a government subsidy, since they are the ones providing the service.

Some folks, probably most notably S. Derek Turner, are opposed to the idea…

Our policymakers should think carefully before creating a new broadband tax. The big concern is that because consumer demand is more sensitive to price increases on emerging services like broadband than established ones like telephone service, a broadband tax could actually undermine adoption in low-income and senior populations, the very people most likely to be disconnected.

Like the rural electrification efforts during the New Deal, the goals of the USF program are noble; we all benefit when more of our fellow citizens are connected. But the FCC needs to focus on making USF more efficient and accountable before it reaches further into our wallets. At the very least, policymakers need to first study the impact of a broadband tax before foisting it on consumers.

I think it’s helpful to have a little background, starting with a brief explanation from LawBrain of the Internet Tax Freedom Act…

It bars Federal, State and local governments from taxing Internet access as well as such as bandwidth taxes, and email usage. It does not exempt taxes on Internet sales.

Congress has extended the ITFA three times. President Bush signed the “Internet Tax Freedom Act Amendment Acts of 2007,” which extended the Act until Nov. 1, 2014.

The Act also authorized the Advisory Commission on Electronic Commerce, which studied the impact of tax tariff. e report was submitted in 2000, so there is room of admitting that it may be outdated – but I thought the following was worth sharing…

The Commissioners have produced a Report that will guide public policy debate on Internet taxation for at least the next decade. I believe the ideas regarding tax cuts and tax reform reflected in this Report will permit the people of the United States to realize all of the social and economic benefits the Internet has to offer. …

  • Eliminate the three-percent Federal Excise Tax on telecommunications services, an antiquated relic from the 19th century, effecting an immediate tax cut of $5 billion for the American people. Elimination of the regressive tax is an important first step in reducing the expense of Internet access, one of the contributing factors to the digital divide. While this tax once was justified as a luxury tax on the few Americans who owned a telephone, it has no rationale in the Information Economy.
  • Extend the current moratorium on the multiple and discriminatory taxation of the electronic commerce for an additional five years through 2006.
  • Prohibit taxation of digitized goods sold over the Internet. This proposal would protect consumer privacy and the Internet and prevent the slippery slope of taxing all services, entertainment and information in the US economy (both on the Internet and on Main Street across America). Moreover, this tax prohibition is essential to maintaining US global competitiveness since the United States currently dominates the world market in digitized goods.
  • Make permanent the current moratorium on the Internet access taxes, including those access taxes grandfathered under Tax Freedom Act. This proposal is another crucial initiative, targeted to reduce the price of Internet access and to close the digital divide. By Expanding the moratorium to eliminate the current grandfather provision, consumers across the country would participate in electronic commerce without onerous tax burdens.
  • Establish “bright line” nexus standards for American businesses engaged in interstate commerce. The cyber economy has blurred the application of many legal nexus rules. American businesses need clear and uniform tax rules and use tax collection obligations. Failure to adapt “bright line” rules to the New Economy will expose many small and medium sized American businesses to expensive and crippling regulation and/or regulation.
  • Place the burden on states to simplify their own labyrinthine telecommunications tax systems as well as sales and use tax systems to ease burdens on Internet commerce. This effort will be particularly important for small and medium-sized retailers with nexus in two or more states. It also will be important for telecommunications companies as they build out the Internet infrastructure and offer new technologies and services. Radical simplification will be necessary in the New Economy if small and medium-sized businesses are to succeed.
  • Clarify state authority to spend TANF funds to provide needy families access to computers and the Internet, as well as the training they need to participate in the Internet economy. This is one strategy the Commission formally recommends to close the digital divide and make the personal computer and access to the Internet as ubiquitous as the telephone and television.
  • Provide tax incentives and federal matching funds to states to encourage public-private partnerships to provide needy citizens access to computers and the Internet. This is yet another strategy the Commission formally recommends to close the digital divide.
  • Respect and protect consumer privacy in crafting any laws pertaining to online commerce generally and in imposing any tax collection and administration burdens on the Internet specifically.
  • Continue to press for a moratorium on any international tariffs on electronic transmissions over the Internet.

Again, perhaps dated, but I certainly recognize some strategies that have come up again in the National Broadband Plan, Minnesota Broadband Task Force reports and strategies that seem to be working today – such as the computer reuse plans deployed by PCs for People.

To bring us back into the present, the idea of taxing Internet deployment came up at the June Minnesota Broadband Task Force meeting. There was a panel of folks from the State who spoke about policies and broadband deployment. Section 179 of the Revenue Code (which allows certain businesses to expense rather than depreciate costs)came up as did the idea of not taxing fiber for fiber network deployments; both ideas were offered up as a means to encourage broadband growth. Task Force members noted that the federal rules around depreciation are more generous than state rules – asking why Minnesota wouldn’t look at what the feds offer. The main reason was the Minnesota budget – and I assume budget as a lot to do with what the FCC is considering today. But are we focused on expense today and sacrificing an investment in our future – in this case often an investment in the rural and underserved areas?

Free Press (S Derek Turner) above suggests a study of the impact on the Internet tax. It seems as if the 2000 Report is a model to use or at least a jumping point for looking into the issues.