On October 31, a federal moratorium on Internet service taxes will expire, allowing state and local governments to tax online access and other services that you use and enjoy every day.
In a new report, Heritage Foundation expert James Gattuso explains how this change will affect you. Below are five things you need to know about this issue.
- The United States has had a moratorium on state Internet taxation since 1998. This ban includes state surcharges on Internet service and state taxes on specific internet services such as email or instant messaging. It also bans “bit” taxes based on internet usage.
- This Internet tax ban does not cover Internet sales tax. That issue involves the power of state tax collectors to require out-of-state retailers to collect sales taxes on their behalf, which is an entirely separate debate. As Gattuso notes, “While not prohibited by Congress’s Internet tax moratorium, such mandates have been properly limited by the courts.”
- H.R. 3086, the Permanent Internet Tax Freedom Act, would permanently ban these taxes. This bill was approved by the House Judiciary Committee on June 18th and will soon go to the House floor.
- 11 of the 25 businesses contributing the most to the U.S. economy are Internet-related. With Internet taxes, we risk threatening this sector’s growth. Internet-related business is one of the few sectors thriving today. With new taxes, subscribership to internet services may fall, especially among low-income consumers. In fact, Gattuso notes that if state taxes average five percent, these services could lose 10 million to 30 million subscribers.
- The tax ban is fully consistent with the principles of federalism. “The Internet, by its nature, is an interstate network,” Gattuso observes. “The effects of Internet tax policy in one state are borne not just by that state’s citizens, but by citizens of other states.”
Read more about how this will affect you here.
Do you think we should permanently ban states from taxing the Internet? Tell us in the comments.