US States Flouting Internet Tax Freedom Act

by Glen Shapiro, LawAndTax-News.com, New York

11 June 2003

According to reports in the US media, at least 18 state authorities are making use of a loophole in the federal tax code to impose a levy on internet access, despite the fact that the 1999 Internet Tax Freedom Act expressly forbids this.

The Washington Post on Monday revealed that the tax authorities in Alabama, Florida, and Kentucky are currently assessing sales taxes on the amounts paid by consumers of high speed digital access to the internet, known as DSL.

The newspaper also revealed that Maryland, Virginia, and 13 other states have passed laws allowing internet access to be taxed when it is bundled with other taxable services provided by a single entity, and six more states are poised to enact similar laws.

Internet service providers (ISPs) in some states are also being required to pay large amounts of tax on the bandwidth that they use to handle internet traffic, a situation which eventually led Atlanta-based ISP, Earthlink to increase its charges, after deciding that it was no longer able to absorb the tax on its own:

'Many states are carving out the underlying telecom network portion of DSL, as not being in the nature of internet access and therefore not protected by the moratorium,' Earthlink's tax director, Mike Shaw told the Post, continuing:

'The law does infer some amount of distinction between telecom service and internet service, and that's enough for states to latch onto and say it was never intended to protect telecom services.'

US telecoms companies and ISPs have called on Congress to rewrite the internet tax ban so that it also covers DSL access, in addition to extending the moratorium which is set to expire in the fall.

Recommended