Don’t tax the Web
Taxes and other government-imposed charges can boost your phone and cable TV bills by 20% or more. To guard the Net against that kind of pile-on, Congress in 1998 adopted the Internet Tax Freedom Act, which temporarily barred state and local governments from taxing online access services or imposing discriminatory levies on Web-based businesses. The ban was renewed in 2004 but is due to expire Nov. 1. Before it does, Congress should make it permanent.
The Internet is transforming how people communicate, work, learn and play, especially as broadband proliferates. Although roughly half of U.S. Internet users have broadband at home, millions do not have any kind of Internet service there, and millions of others have only dial-up accounts. These folks are largely poor, elderly or rural, and the federal government needs to ensure their access to affordable broadband services.
Barring states and cities from taxing Internet access won’t close the connectivity gap, but it will help keep down the price of broadband service. That’s an important step in the process of enabling more consumers to afford it. The prohibition also spares many cable-modem and DSL users, who pay taxes on the TV and phone services they receive through the same wires, from being double-taxed. Nor should Web-based companies have to pay taxes that their brick-and-mortar rivals do not. Mail-order businesses are immune to taxes outside the states where they’re based, so e-commerce companies should be too.
Lobbyists for state and local governments have warned Congress that Internet-access companies will bundle phone, TV and other services with broadband to avoid taxes on the whole package. It’s a good point, and lawmakers should be careful that the protection for purely Web-based businesses doesn’t become a loophole for Internet-access companies to exploit. These lobbyists also have argued against a permanent extension of the tax moratorium, saying the Net is changing too rapidly to predict the long-term effect of the ban. That’s not a persuasive argument, because Congress can pass another law ending the ban if needed. The greater risk is the one Congress faces now. Several states are poised to institute new taxes on Internet access the moment the current moratorium lapses. That’s reason enough for Washington to enact a permanent ban.
