The House Judiciary Committee will likely approve a bill today to make permanent the Internet Tax Freedom Act (ITFA), which bans discriminatory and multiple taxation of Internet purchases and imposes a moratorium on new state and local taxes on Internet access services. Rather than make ITFA permanent, Congress should extend its ban on discriminatory and multiple taxes for a few years but allow its prohibition on taxing Internet access to lapse.
That prohibition denies states and localities billions of dollars in potential revenues each year — money that could help undo cuts in education, libraries, and other critical services made due to the Great Recession. Reversing those cuts would do far more to expand low-income families’ use of the Internet (a recent argument for continuing the prohibition) than keeping Internet access fees a few dollars cheaper each month.
As I’ve noted, ITFA’s justification when first enacted in 1998 was to impose a temporary “time out” on new taxes on monthly Internet access fees while states, localities, and Internet service providers devised uniform rules to tax them under existing taxes.
More recently, service providers have argued that banning these taxes is necessary to close the “digital divide,” or the gap in high-speed (“broadband”) Internet access between low- and high-income households. Keeping Internet access as inexpensive as possible will encourage low-income people to subscribe and service providers to extend broadband service to low-income neighborhoods, they claim.
What’s wrong with this justification? Everything:
The Internet is no longer a fragile infant industry needing protection from taxes that apply to other services for which Internet access is a close substitute. Cable television service is widely taxed, for example, but if someone decides to pay Verizon $50 a month so that they can stream Netflix to their TV, ITFA bans the taxation of that charge. Likewise, sending text messages on your smartphone is taxable, but sending the same messages as emails or Twitter feeds isn’t.
It’s high time Congress recognized that this unequal treatment doesn’t makes sense.