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House Votes to Make ISP Tax Ban Permanent

If the Senate follows suit next week, almost a half-billion dollars in taxes on Internet access service will be phased out by 2020, providing a tax break to MVPD subs in seven states, and making broadband access cheaper.

The House Friday (Dec. 11) voted, for a second time, to make the moratorium on Internet access taxes permanent. It had already voted to do so back in June, approving the stand-alone Permanent Internet Tax Freedom Act, but that did not pass the Senate. Friday's version of the moratorium, added as a rider on a customs and trade bill, required the House to vote again on the issue.

The bill would permanently bar state and local taxes on ISP access, and sunset the seven states, including Texas, whose ISP taxes were grandfathered when the initial ITFA bill passed in 1998. It also has an e-commerce provision that prevents dual taxation—two states taxing the same Internet transaction

ITFA has been reauthorized five times since 1998, most recently through Sept. 30 after the moratorium was extended last December as part of a must-pass appropriations bill. At the time Rep. Bob Goodlatte (R-Va.), who helped spearhead the legislation, said that the last thing Americans needed was another tax bill. He pointed out that without a moratorium, ISPs could be subject to over $6 billion in new taxes.

During debate on the bill Friday, Rep. Sheila Jackson Lee (D-Texas) registered her concerns about the $358 million she said her state would lose in Internet taxes, the largest single tax hit, by far, among the seven affected states.

Rep. Jared Polis (D-Colo.) supported making ITFA permanent, but in his House floor debate on the overarching trade and customs bill Friday (Dec. 11), he included the addition of the ITFA provision in his criticism of Republicans putting unrelated riders on bills.

Rep. Tom Cole (R-Okla.) said making it permanent made sense and that its renewal had never been particularly contentious. Of course, those renewals included renewing the grandfathered states' taxes, which will now be sunset.

The Senate is expected early next week to vote to approve the Trade Facilitation and Trade Enforcement Act of 2015 (H.R. 644) and permanent IFTA rider.

If so, it means that by 2020, the seven states currently with ISP taxes, totaling some $500 million according to a Center on Budget and Policy Priorities 2014 estimate, would have to eliminate those taxes. Actually, by then it will only be six since South Dakota voted this year to end its tax in 2017.

According to a source familiar with the taxes, they are all direct taxes on subs rather than taxes on ISPs—sales taxes and a gross receipts tax in Hawaii—so it will represent a tax break for consumers.

The bill's passage also removes some, but not all, of cable ops concerns about new taxes being levied on ISPs reclassified as telecoms under Title II reclassification.

The latest step toward permanent status drew praise from various industry players.

“We support congressional action to permanently eliminate taxes that could deter citizens who daily have to decide between broadband and bread,” stated Kim M. Keenan, president of the Multicultural Media, Telecom & Internet Council (MMTC). “Net equality is the goal of giving every American access to a digital future. The original Internet tax moratorium has been extended five times since 1998, and it is past time to put this issue to rest.”

Rep. Bob Goodlatte (R-Va.), a big backer of a permanent IFTA, said during debate that low-income households could wind up paying 10 times as much in taxes as a share of their average household incomes if Internet service taxes were permitted.

He said he is working separately on the Internet sales tax issue, which some in Congress had wanted to combine with ITFA.

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.