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Weekly UpdatesState and local governments face the possibility of substantial losses in tax revenue if a federally imposed ban on Internet access taxes is enacted into law, according to a recently published report by the Center on Budget and Policy Priorities.
The Internet Tax Non-Discrimination Act of 2003 (H.R. 49), which was approved by the House of Representatives September 17, would permanently prohibit state and local governments from taxing the sales of Internet access services. According to the Multistate Tax Commission, this would reduce state and local tax revenue by $2 billion to $9 billion annually. The impact would be particularly painful for governments already facing fiscal strain.
H.R. 49 and its nearly identical Senate counterpart, S. 150, are an extension of the Internet Tax Freedom Act (ITFA), which was enacted in 1998. ITFA placed a moratorium on state and local taxation of Internet access services, which the new legislation would essentially make permanent.
Among the key changes in the legislation is an expanded definition of "Internet access" that would include telecommunications services such as high-speed DSL. Under the new definition, state and local governments would be prohibited from taxing Internet access services provided by telephone and cable companies, as well as businesses such as America Online. This change would cost state and local governments in at least 27 states a total of $70 million in revenue annually.
H.R. 49 also calls for the immediate elimination of the ITFA grandfather clause permitting state and local governments to continue levying Internet access taxes that were "imposed and actually enforced prior to October 1, 1998." S. 150 would postpone the elimination of the grandfather clause until October 1, 2006. According to the Congressional Budget Office, state and local governments in the 11 states with grandfathered taxes would lose a total of $80 million to $120 million in revenue annually.
The entire CBPP report, "Making the Internet Tax Freedom Act Permanent in the Form Currently Proposed Would Lead to a Substantial Revenue Loss for States and Localities," is available online at www.cbpp.org.
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