It goes without saying that the Internet plays a vital role in our lives. The Internet enables us to shop, watch the play from the playoffs that we missed and cat videos. It’s estimated that Americans spend 11 hours a day with electronic media like the radio, TV, the Internet and movies. Keeping the Internet affordable and accessible has been an important tenet of its growth and expansion. While many people – especially Congress – have disagreed on the best ways to do that, Congress and presidents agreed for more than a decade that state taxation to access the Internet is a bad idea.
That’s why in 1998 a law was passed called the Internet Tax Freedom Act, which prevented most states from assessing a sales tax on Internet access. There was an exception for states with a tax already on the books, but that only applied to seven states at the time. Since then, the law has been extended several times with bipartisan support.
The law is getting ready to sunset again in November, but Congress is moving to prevent that from
happening. Some members of Congress are hoping to make the tax restrictions permanent, which is a positive step that will help continue to fuel growth of the digital economy.
To accomplish this goal, the House of Representatives passed the Permanent Internet Tax Freedom Act, which has significant bipartisan support. It’s a step in the right direction that ideally will find support in the Senate. Unlike the original law, the permanent legislation would apply fairly to all states, therefore ending the access taxes remaining in states excepted by the original law.
Allowing the law to sunset could have a big impact on the cost of accessing the Internet. It’s estimated that up to $7.0 billion in a year potential taxes would be generated if the law were to expire and all states were to charge access taxes. In this case, the victims wouldn’t be the states, but rather the families hit by an average 8% new tax on access to the Internet. Public policies should support better access to the Internet, not add greater expense or red tape to products and services that consumers increasingly depend on online.
Current law doesn’t restrict states from charging sales taxes on online purchases. The proposed Permanent Internet Tax Freedom Act is specifically protecting access to the Internet so that users will not be charged additional fees for getting online at home. Access, after all, is the foundational element that makes the rest of the Internet economy possible.
Many argue that the Internet no longer needs to be tax free to continue growing, and states need the tax revenue to fund budget shortfalls. But in the 15 years since the law has been in effect, the United States has experienced two recessions. Recessions always put a significant strain on state budgets, but nonetheless, states have survived without taxing the Internet. In fact, even states that can charge for Internet access, like Texas, still suffered from budget shortfalls despite its ability to tax the Internet to the tune of $500 million a year.
The Internet plays a critical role in bolstering and creating growth in the world economy. The stronger the Internet economy is, the more options that small business entrepreneurs have to leverage the resources of the Internet to reach customers and streamline operations. And consumers like you and me depend on the Internet not only at work but at school, on vacation and in places near and far from home.
Lawmakers should avoid the mistake of assuming the Internet is ripe for more taxation and avoid implementing public policy that negatively impacts something that has flourished free from too much interference from government. The Senate and President should support the Permanent Internet Tax Freedom Act to support American Internet users and the digital economy and create certainty for the future.
By Michael Price, Executive Director of the Coalition for a Connected West., Aurora, CO
Contact: Michael Price