The good, the bad, and the really good news on Internet taxes

By: Peter Davidson

Good news: recent Pew Internet research indicates that the “digital divide” has been narrowing over the last decade, as more and more Americans of all ages and socio-economic backgrounds get online. While there is still more work to do, innovation, competition and education have helped address many of the usual barriers to broadband adoption, particularly with respect to mobile broadband.

But there's also some bad news: despite this progress, the promising adoption trend is in danger. Tomorrow, the federal Internet Tax Freedom Act (ITFA,) a law banning taxes on Internet access, is scheduled to expire.

Boosting broadband adoption is a goal that policymakers from both parties share. They recognized long ago that allowing state and local jurisdictions to impose telecom taxes on fixed broadband and wireless services would make those services more expensive to consumers, thereby causing an adverse impact on broadband adoption. As such, Congress originally enacted ITFA in 1998 and this policy has been repeatedly renewed by overwhelming margins over the past 17 years.  Unfortunately, this favorable consumer policy is once again scheduled to expire, presenting Congress with the opportunity to put the issue to rest once and for all by making the ban on taxing access permanent.

The FCC’s recent Open Internet Order further complicates this matter. The decision to place broadband access service in the same category (“Title II”) as telephone service means that without ITFA in place, the door will be open for state and local governments to try to extend the taxes they already collect on telephone and wireless voice services to broadband access services. Sen. Ron Wyden, one of the authors of the original ITFA, made it clear last year that ITFA is meant to pre-empt state and local Internet taxes, which are on average 11.5% but can be as high as 17% in some places. An 11.5% tax applied to a $100 monthly data plan would add another $204 to a subscriber’s bill over a year. All in all, broadband subscribers could be on the hook for as much as $16 billion each year just for their ability to access the Internet. Although the courts will ultimately decide next year whether the FCC’s Open Internet Order will stand, in the meantime, consumers are left vulnerable to a sudden tax increase unless Congress extends ITFA. What’s more, a court ruling against the FCC would set off the cumbersome process of unwinding potentially hundreds or thousands of separate tax laws, should ITFA be allowed to expire.

But here’s the REALLY good news: The House and Senate will soon vote on the Trade Facilitation and Trade Enforcement Act of 2015, H.R. 644, which contains a permanent moratorium on Internet access tax. For the first time in the history of the Internet, consumers won’t have to worry about annual extensions of the moratorium. It’s long past time for Congress to roll up its sleeves and pass this critical legislation. Right now, the House is scheduled to take up the bill tomorrow, and the Senate on Monday. So tweet, text, blog, fax, call, semaphore or visit your members of Congress and tell them to pass the permanent Internet tax moratorium now! 

Peter Davidson is responsible for federal legislative affairs and global public policy at Verizon. Before joining the company, Davidson served as general counsel assisting the United States Trade Representative in negotiating and implementing trade agreements and supervising litigation at the World Trade Organization. Prior to becoming general counsel to the USTR in February 2001, Davidson was vice president for Congressional Affairs at Qwest, coordinating all federal legislative activities for that company.