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Temporary ISP Tax Ban Likely Will Be Permanent

If a trade bill compromise hammered out in conference this week passes, as expected, ISPs' shield from taxes on their service will become permanent and, eventually, phased out where they are currently levied.

The House and Senate have agreed to adding a permanent extension of the Internet Tax Freedom Act (ITFA) to a bill expected to pass Congress. ITFA is the law passed in 1998 that prohibits states and localities from taxing Internet access.

But that 1998 law was temporary and had to be renewed periodically, while the current version would make it permanent, as well as eventually sunsetting the handful of states whose taxes were grandfathered because they were in place before the 1998 ban. Those states have until June 2020 to phase out their taxes.

The permanent moratorium was affixed in a House/Senate conference to the end, literally (pages 381 and 382 of a 382-page document), of a trade and customs bill, the Trade Facilitation and Trade Enforcement Act of 2015 (H.R. 644).

Agreement on the bill language was announced Wednesday by Senate Finance Committee chairman Orrin Hatch (R-Utah), House Ways and Means chairman Kevin Brady (R-Texas), and Finance Committee ranking member Ron Wyden (D-Ore.).

Wyden, who co-wrote the 1998 ITFA bill, has been a strong proponent of making the moratorium permanent.

“Small businesses and consumers in Oregon could soon finally be free from the threat of hundreds of dollars in new taxes each year, just to access the Internet," said Wyden following the announcement of the compromise trade bill. "I co-wrote the Internet Tax Freedom Act nearly a decade ago to help spur the growth of the digital economy. Today online commerce is responsible for hundreds of thousands of jobs. In my view, when you have something that works, that has stood the test of time, you ought to make it permanent."

Extending ITFA, which was to have expired Sept. 30, to Dec. 11 had been included in the Continuing Resolution passed Sept. 30.

The House passed a permanent ITFA stand-alone bill in June, but it did not make it to a Senate vote.

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.

Rep. Anna Eshoo (D-Calif.), another bill backer, has suggested another last thing she wants to see was making it harder for people, particularly lower income and minorities, to get affordable broadband.

Rep. Steve Cohen (D-Tenn.) has said making the moratorium permanent was important to insure minorities had access to broadband so they could fully participate in society. He had warned that states like his, without an income tax, would add an ISP tax to its list of regressive taxes if allowed to tax Internet access.

Rainbow PUSH, which argues that access to communications is a civil rights issue, was among the groups supporting the bill.

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.