Critique of Multistate Tax Commission’s “Analysis” of
Internet Tax Non-Discrimination Act

The Multistate Tax Commission (MTC) recently claimed that the Internet Tax Non-Discrimination Act (H.R. 49/S. 150) will reduce state and local taxes by up to $22 billion annually based on the faulty assumption that the statutory language changes will exempt (1) all telecommunications services and (2) all telecommunications providers’ property and income from all state and local taxes.

  • The MTC analysis is fundamentally flawed because it ignores the simple meaning of the terms used in the ITFA and the proposed bill as well as the clear legislative intent of current and proposed legislation.
  • The bill ensures that the ITFA tax exemption is applied only to those telecommunication services that are purchased or used to provide Internet access, not other telecommunications services that may be provided over the Internet.
  • The bill does not affect state and local taxation of voice telecommunications services (i.e., “plain old telephone service” – POTS – is still subject to tax.)
  • The bill permanently extends the prohibition of transaction taxes imposed on Internet access and does not apply to corporate income or property taxes.
  • The only taxes that are preempted are “taxes on Internet access,” in other words, taxes on a service (i.e., transaction taxes.) A property tax is a tax on physical infrastructure, so property taxes CANNOT be covered by the ITFA preemption. An income tax is based upon the total operations of an entity. They are not transaction-based upon the specific service being provided, so income taxes CANNOT be covered by the ITFA preemption.
  • The ITFA has been in effect since 1998. If the MTC “analysis” were correct, taxes on corporate income or property would ALREADY have been challenged. No such challenge has been made by telecommunications companies or Internet service providers.
  • In sum, the MTC has estimated the impact of a bill that simply does not exist.
  • The total estimated telecommunications taxes paid to states and localities tops $22 billion per year. The CBO estimate of the fiscal impact of this legislation is a reduction of $80 to $120 million, due to the elimination of the “grandfather” provision. The bottom line is that even with the elimination of the “grandfather” provision, the revenue impact on states and localities is minimal.