Nearly a half-dozen tax proposals affecting Internet operations are expected to appear on the congressional agenda, with many of them affecting broadband and cable services.
Tops among the expected legislation is an update of the “Digital Goods and Services Tax Fairness Act,” which could tax digital video sales and rentals, including pay-per-view, video-on-demand and video downloads.
Revenue-hungry legislators will also have to review the fundamental “Internet Tax Freedom Act,” which expires in November of 2014. That law prohibits taxes on Internet access, thus exempting Internet-service providers — including cable operators — from such taxes as discriminatory levies on online transactions.
Steve DelBianco (pictured), executive director of NetChoice (www.NetChoice.org) — an advocacy group whose members include News Corp., Yahoo!, Facebook, AOL and Barry Diller’s IAC — said he expects the Digital Goods and Services proposal will be introduced in coming months, though there is currently “no timetable.” He expects this year’s version to resemble the 2011 bills, adding that it may again be sponsored by Sens. Ron Wyden (D-Ore.) and John Thune (R-S.D.) and Reps. Lamar Smith (R-Texas) and Steve Cohen (D- Tenn.).
TAXING ‘DIGITAL GOODS’
“The rental and purchase of digital video are becoming popular targets for new taxes,” DelBianco said. “NetChoice supports this legislation, since it says which state gets the right to impose a tax, requires that legislators make the tax decision, and prevents discriminatory taxes.”
In addition to movies and TV episodes, “digital goods and services” may include interactive “apps,” music, ebooks and video games.
Cable-industry executives, speaking on background, said they want to make sure that pay-per-view and video- on-demand products are treated in the same way as over-the-top video, despite some architectural differences. For example, OTT providers — especially ones that operate in “the cloud” — generally do not have a nexus (point of presence) in every state, unlike cable operators, which do have such presence and might therefore face diverse state taxes.
DelBianco’s group is “working to address technical concerns of state and local tax administrators, including the issue of whether tax legislation must be validated by the courts,” he said. Even if such legislation is adopted, “state and local governments are still going to seek new taxes on the ways we enjoy digital media,” he added.
Legislative considerations will have to include a “critical” evaluation of content that is downloaded versus streamed, according to DelBianco.
Cable lobbyists are watching the congressional approach to taxes on digital services, sales-and-usage taxes and the expected “Wireless Tax Fairness Act,” which may affect cable’s growing Wi-Fi services. The bill — which CTIA-The Wireless Association expects to be introduced by next month — could include a 17% levy on voice-over-Internet protocol, an important component of cable’s so-called triple play.
Invoking familiar language, cable-industry lobbyists said that the industry simply seeks “a level playing field” as video program delivery expands into broadband on-demand and over-the-top services.
The fundamental “no tax on the Internet” legislation is the “Internet Tax Freedom Act” (H.R. 434), introduced by Rep. Steve Chabot (R-Ohio) and referred to the House Judiciary Committee; submitted by New Hampshire GOP Sen. Kelly Ayotte (S. 31) and sent to the Senate Finance Committee. Both bills were submitted in late January and seek to extend or make permanent the ban on taxing Internet access.
No action is expected until closer to November of 2014, when the current moratorium expires. Cable-industry groups support the measure.
“The bill assures that the tax moratorium remains in place to assure access to all and [ensure] the growth of the Internet,” Capitol Tax Partners partner Annabelle Canning said at a recent Capitol Hill seminar on Internet taxation.
That briefing for congressional staffers, policymakers, cable and telco representatives and the media, assembled by the Information Technology and Innovation Foundation and the Institute for Policy Innovation, spelled out Congress’ expected taxation agenda affecting communications, e-commerce and information technology providers. It took place just days before the Senate’s March 22 approval of an amendment authorizing taxes on interstate online purchases.
SEPARATING FROM TELECOM TAXES
The online sales tax was tacked onto the Congressional budget resolution and is seen as a harbinger to approval of the more sweeping and divisive “Marketplace Fairness Act of 2013” (S. 336), introduced in February with 26 Senate cosponsors.
The National Cable & Telecommunications Association and other cable groups have supported the sales-tax moratorium and are expected to push to make it permanent when it comes for reconsideration. Many in the industry say the bill simplifies taxation for states and consumers.
Since a core feature of this proposal is the elimination of discriminatory taxes, the bill could also set a precedent to prohibit local jurisdictions from placing e-commerce sales taxes on top of state taxes.
ITIF president Robert Atkinson, a moderator of the congressional briefing session, enunciated principles that he believes should define congressional consideration of Internet taxation.
In particular, he called for safeguards that taxes “should reflect what is being sold, not how it’s being sold.”
Rubio Wants Telecom Act Update, FCC Reform
WASHINGTON — “It is time that Congress looks at moving beyond the ’96 [Telecommunications] Act,” Sen. Marco Rubio (R-Fla.) told a telecom policy gathering here March 21. “For telecommunications, a law based on the past is only going to hurt its future.”
The senator would also like “to look at reforming the [Federal Communications Commission] in order to have more of a predictable and transparent regulatory process,” he said.
“That should be the case for any agency, but especially the FCC,” he said at a luncheon keynote speech to the Fifth Annual Telecom Policy conference of the Free State Foundation.
Rubio, a member of the Senate Commerce Committee’s Subcommittee on Communications, Technology and the Internet, said that when he first joined the panel, “I was struck by how the laws and regulations governing the industry do not match the nature of the industry.
“We have a fast-paced, dynamic industry operating in a hypercompetitive environment,” he said.
He cited several ways that the FCC could improve its operations to “mirror the industry it regulates.” In particular, Rubio called for “demonstrating the necessity and benefits of regulations, restricting conditions that can be put on acquisitions and spectrum auctions, requiring the agency to set and follow timelines and deadlines for its proceedings [and] reforming the forbearance authority so it is more difficult for the FCC to reject regulatory relief petitions when they are justified.”
Cable insists that VOD, PPV and streaming should face a “level playing field” with over-the-top video in any new taxes on “digital goods and services.”
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Contributor Gary Arlen is known for his insights into the convergence of media, telecom, content and technology. Gary was founder/editor/publisher of Interactivity Report, TeleServices Report and other influential newsletters; he was the longtime “curmudgeon” columnist for Multichannel News as well as a regular contributor to AdMap, Washington Technology and Telecommunications Reports. He writes regularly about trends and media/marketing for the Consumer Technology Association's i3 magazine plus several blogs. Gary has taught media-focused courses on the adjunct faculties at George Mason University and American University and has guest-lectured at MIT, Harvard, UCLA, University of Southern California and Northwestern University and at countless media, marketing and technology industry events. As President of Arlen Communications LLC, he has provided analyses about the development of applications and services for entertainment, marketing and e-commerce.