Senate Passes Permanent Extension of Internet Tax Freedom Act

Today, February 11, 2016, the Senate passed a permanent extension of the Internet Tax Freedom Act, which would permanently ban state and local taxes on Internet access. Because the House passed its version of the bill in June 2015, the legislation now waits for President Obama’s signature. (See my June 2015 blog on the House passing the bill.)

As I have written many times, along with FSF scholars who have written on the subject, Internet access taxes at any level of the government would make Internet access less affordable for all consumers and, therefore, stifle broadband infrastructure investment from Internet service providers.

Thanks to Congress for passing this important piece of legislation. Now, President Obama must sign the bill in order to keep the Internet affordable for all!

Congress Extends Internet Tax Freedom Act – Again!

On Friday, December 18, 2015, Congress passed and President Obama signed the $1.1 trillion funding bill that will keep the federal government running until September 30, 2016. This legislation includes a nine-month extension of the Internet Tax Freedom Act (ITFA). If Congress had failed to extend the ITFA, states and municipalities would have had the ability to tax Internet access.

Despite the good news of the nine-month extension, it is very important that the Senate pass the Permanent Internet Tax Freedom Act in the next nine months to avoid another close call with the ITFA expiration date at the end of September 2016. Congress has had to extend the ITFA a handful of times in the past two years. The House already passed its version of the bill back in June 2015. (See my blog from last week.)

Permanently banning taxes on Internet access would help keep the Internet affordable for all Americans. And it would lead to additional market-driven innovation, content choices, and economic growth. 

Senate Should Immediately Pass the Permanent Internet Tax Freedom Act

The Internet tax moratorium is set to expire on Wednesday, December 16, 2015. Instead of Congress temporarily extending the moratorium as it has done several times in the past two years, the Senate should pass the Permanent Internet Tax Forever Act, which would permanently ban state and local taxes on Internet access. (See here, here, and here.) The House already passed its version of the bill back in June 2015. (See my June 2015 blog for more.)

Michael Powell, President and CEO of the National Cable and Telecommunications Association, Meredith Attwell Baker, President and CEO of CTIA - The Wireless Association, and Walter B. McCormick Jr., President and CEO of U.S. Telecom Association, sent a coalition letter to members of the Senate, urging them to support a permanent extension on the Internet Tax Freedom Act. The letter also discusses the important bipartisan history of this issue:

Over the nearly 17 years since ITFA was enacted, the Internet has become an engine for economic growth, opportunity, and inclusion while American consumers have been shielded from having their broadband access subject to the myriad of discriminatory taxes and fees that apply to traditional telecommunications services, often at rates twice that of general sales taxes—11.5% on average but as high as 17% in some places. Because of this bipartisan policy achievement, most Americans have never paid these taxes on their broadband access.

This success – begun during the Clinton Administration, and continued through the Bush Administration and thus far through the Obama Administration – is at risk because ITFA will expire this year unless Congress acts. Expiration would likely increase the cost of broadband access as it would become vulnerable to new onerous telecommunication taxes and fees, an imminent threat due to the Federal Communications Commission’s recent reclassification of broadband services as a Title II telecommunications service. At a time when promoting broadband adoption is a national priority, Congress should ensure that every American can afford to participate in the digital economy by making the expiring ban on Internet access taxation permanent.

As stated in the letter by these industry leaders, permanently banning taxes on Internet access would help keep the Internet affordable for all Americans and would lead to additional market-driven innovation, content choices, and economic growth. 

The Senate should act immediately to adopt the permanent ban on state and local taxes for Internet access!

Congress Should Emulate Florida's Approach On Cellphone Taxation

In January, Florida Governor Rick Scott announced a plan to cut $470 million in cellphone and television taxes. Fortunately, Florida State legislators appear to be receptive to his plan. On April 9, the Florida House passed a $690 million tax cut that would save cellphone users a significant amount of money if the Senate signs off on the bill.

Currently, Florida residents pay the fourth highest wireless tax rate in the country when including federal, state, and local taxes. Only New York, Washington, and Nebraska have higher wireless tax rates.

Cutting wireless taxes will substantially benefit the low-income Florida residents considering that over 56 percent of all poor American adults had only wireless Internet service as of December 2013. (This percentage has likely increased as wireless networks and wireless plans have become more available.) So not only is it important that wireless taxes be cut throughout the United States – not just Florida, but also that taxes on Internet access are as low as possible in order push prices to an affordable level so every willing consumer can get online. As I’ve encouraged Congress before, this is why the House and Senate should vote to permanently extend the Internet Tax Freedom Act (ITFA), which would ban taxes on Internet access at the state and local levels. (See here and here.)

As of now, the current tax moratorium of the ITFA expires on October 1, 2015, so the permanent moratorium should be adopted as soon as possible. Permanently extending the ITFA should be legislation both parties and chambers can support because it will lead to additional market-driven innovation, content, and economic growth.

Despite What FCC Chairman Wheeler Says, His Proposal Will Increase Taxes

The common perception among Title II opponents is that reclassification of broadband as a telecommunications service would levy a massive amount of new taxes and fees on Internet users. Robert Litan and Hal Singer of the Progressive Policy Institute estimated in a December 2014 policy brief that Title II regulations will add about $11 billion in new taxes.

Free Press claims that the extension of the Internet Tax Freedom Act (ITFA) by Congress eliminates the possibility of Title II reclassification resulting in any new taxes or fees. Now that FCC Chairman Tom Wheeler released a synopsis of his proposal (he has not released full proposal to the public), it is important that we get a straight answer.

Although Chairman Wheeler did not mention anything about new taxes or fees in his Wired blog post on his proposal on February 4th, the FCC Fact Sheet on the proposal clearly states:

The Order will not impose, suggest or authorize any new taxes or fees – there will be no automatic Universal Service fees applied and the congressional moratorium on Internet taxation applies to broadband.

So it is clear? Chairman Wheeler’s proposal to reclassify broadband under Title II will not add any new taxes or fees, right? Wrong!

FCC Commissioner Ajit Pai released a February 6th statement on the 332 page proposal stating:

The plan explicitly opens the door to billions of dollars in new taxes on broadband. Indeed, states have already begun discussions on how they will spend the extra money. These new taxes will mean higher prices for consumers and more hidden fees that they have to pay.

Okay, so which statement is true?

Mr. Litan and Mr. Singer clarified the results of their paper in a blog post after Free Press claimed the findings were inaccurate due to the extension of the ITFA. Despite the passing of ITFA which generally bans Internet sales and access taxes, the Litan and Singer policy brief takes into account state-based telecom related fees for which there is no federal preemption.

Additionally, Hal Singer wrote a Forbes article after Chairman Wheeler released his blog. He said that even if the proposal does not include any new federal taxes, “state and local fees that apply to the ‘obligations of a telecommunications carrier’ could easily be extended to Internet service after reclassification.” Mr. Litan and Mr. Singer estimated in their policy brief that Title II regulations will cause annual state and local fees levied on wireline and wireless broadband subscribers to increase by $67 and $72, respectively.

Here is what seems to be going on. Chairman Wheeler is promising forbearance from the imposition of new taxes and fees, but he has no control over the actions of state and local governments which levy taxes on telecommunications providers. Additionally, the forbearance process likely will take months to years to complete and Chairman Wheeler has no authority to overrule the decisions of current or future commissioners. In other words, the proposal promises no new taxes, not because Title II regulations do not levy them, but because Chairman Wheeler hopes that future commissioners will vote to take federal taxes off the table and that state and local governments will not levy existing tax laws on Internet service providers. At least, this is the political agenda Chairman Wheeler is promoting at the moment.

When it comes to the forbearance of new taxes and fees under Title II, we should expect the worst and hope for the best. Unfortunately, the uncertainty of the forbearance process is enough to ensure that not all taxes and fees, if any, will be eliminated from Title II regulations.

PITFA Introduced in the House

House Judiciary Committee Chairman Bob Goodlatte (R-Va.), Congresswoman Anna Eshoo (D-Calif.), Subcommittee on Regulatory Reform, Commercial and Antitrust Law Chairman Tom Marino (R-Pa.), Congressman Steve Chabot (R-Ohio), and Congressman Steve Cohen (D-Tenn.) have introduced H.R. 235, the Permanent Internet Tax Freedom Act (PITFA). Last Congress, the House of Representatives passed PITFA by voice vote.

While the Congress extended the Internet tax moratorium last year, a permanent ban on should Internet access taxes should be adopted. The introduction of H.R. 235 is a good first step.

This is a piece of legislation that will be good for the economy that should be accomplished on a bipartisan basis.

House Committee Passes Bill To Permanently Ban Internet Access Taxes

As reported by news outlets, the House Judiciary Committee has just passed H.R. 3086 - "The Permanent Tax Freedom Act." The legislation was approved with a 30-4 vote. 

H.R. 3086 is sponsored by Chairman Bob Goodlatte, and co-sponsored by Reps. Eshoo, Bachus, Cohen, and Chabot. As the title suggests, the bill would extend the current moratorium on federal and state Internet access taxes by making it a permanent tax ban. The existing moratorium is set to expire at the end of 2014.

Congratulations to the sponsor, co-sponsors, and House Judiciary Committee. The Committee's vote on H.R. 3086 is an important step toward permanently ensuring that Internet access will remain tax free.

Support Grows for Banning Internet Access Taxes Forever

Thanks to the Internet Tax Freedom Act of 1998, consumers have been able to benefit from access to the Internet free from state and local taxes for well over a decade. And, the digital marketplace has grown and thrived thanks, at least in part, to this access tax ban. However, in November of this year, the moratorium on Internet access taxes expires unless Congress takes action to extend the ban or make it permanent.  

In a Perspectives published in October of last year, I discussed the many positive effects of free Internet access. The current regime prohibiting Internet access taxes has fostered economic growth and investment, technological innovation, and broadband deployment and adoption. For instance, a 2011 McKinsey study ranked the United States as the most prominent country in the “global Internet supply ecosystem,” attaining more than 30% of global Internet revenues and more than 40% of net income. If an Internet access tax were imposed, the thriving Internet economy may be threatened.

Thankfully, support for a permanent moratorium on Internet access taxes has been growing in the House and the Senate. And, interest groups like MyWireless.org have made available a petition to allow the public to voice their support for continuing to ban Internet access taxes. The enactment of a permanent ban on Internet access taxes will promote the availability of information, continued technological innovation, and the economic success of the digital marketplace.