SUPPORT S.150
THE INTERNET TAX NON-DISCRIMINATION ACT

S.150, the Internet Tax Non-Discrimination Act, permanently ensures that states may not tax American consumers’ access to the Internet, regardless of the technology used to do so. S.150, also permanently extends the existing moratorium against multiple and discriminatory taxes on electronic commerce. The Internet provides all Americans with an important tool and is a crucial engine for our American economy. Currently, half of all Americans have access to the Internet – access to the 21st Century Information Highway must be expanded to all Americans.

• The Internet Tax Non-Discrimination Act makes permanent the current moratorium on Internet taxes. Congress first passed the Internet Tax Freedom Act (ITFA) in 1998. The moratorium was extended by Congress in 2001 and expires this November. Over the last five years, the number of Americans who can access the Internet has continued to grow. To enhance future growth the moratorium should be permanently extended.

• The State Streamlined Sales Tax Project is a separate issue and should not be attached to S.150. The Internet Tax Non-Discrimination Act does not impact any State’s ability to tax on-line sales. The bill simply continues the existing prohibition on taxation of Internet access and taxation that singles out Internet users for unfair treatment.

• “Grandfathered” states are addressed in the bill. S.150 permits “grandfathered states” to continue imposing pre-1998 taxes on Internet access for three years.

• The Internet Tax Non-Discrimination Act ensures technological neutrality by providing that all Internet access is free from taxation, regardless of the technology used to access the Internet. When Congress passed the original Internet Tax Freedom Act in 1998, Internet access became exempt from state and local taxation. Today, American consumers benefit from competition between many different technologies used to provide Internet access – DSL, cable modem, direct satellite, and wireless. Some states and localities have misconstrued the Act, by attempting to tax consumers whose Internet access is provided by telecommunications companies. This bill makes sure that the ITFA will be technology neutral.

• 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) or other telecommunications services not purchased or used to provide Internet access. This amendment does not impact the taxation of other telecommunications services, the imposition of federal USF charges or affect current or pending regulatory matters at the FCC.

• The Internet Tax Non-Discrimination Act extends the prohibition of transaction taxes imposed on Internet access and does not apply to corporate income or property taxes.

• 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.