Internet Taxation: Why It Matters in the Open Internet Debate

Internet Taxation: Why It Matters in the Open Internet Debate


TAXATION – the one word that makes the average American cringe at its mention.  There’s income taxes, corporate taxes, Social Security taxes, property taxes and sales taxes to name a few. However, how would you feel if there were taxes imposed on your Internet use? That is a question that is often missed in the Net Neutrality/Open Internet debates.

As a hotly contested topic, all eyes are on the FCC as the agency looks to adopt open Internet rules grounded primarily in Title II of the 1934 Telecommunications Act, although recent reports point to the Commission invoking parts of Section 706 of the 1996 Telecommunications Act as well. One of the biggest concerns with Title II is that reclassifying broadband as a public utility would lead to increasing the likelihood that consumers will be susceptible to taxation for both residential fixed and wireless broadband services. According to the Progressive Policy Institute, if broadband is reclassified as a public utility there will be an average annual increase in state and local fees levied on U.S. wireline and wireless broadband subscribers around $67 and $72, respectively. The annual increase in federal fees per household is expected to be around $17. In total, the reclassification could add $15 billion in new user fees. The higher fees would be a result of the adverse impact on consumers of less investment and slower innovation from the reclassification.

According to, the average sales tax is 7%. When it comes to communications services, telephone and voice services are taxed on average at 17% and cable and video services are taxed at 12% on average. These communications taxes are imposed across the nation varying per local and state jurisdiction.

In 1998, Congress passed the Internet Tax Freedom Act that imposed a temporary moratorium on certain taxes pertaining to Internet use in the United States. Over the past couple of years, this moratorium has been extended. Last December, Congress temporarily extended the moratorium until October 1, 2015. However, the best and probably most efficient way to address this issue is for Congress to create a permanent extension which would prevent Internet access taxes at the state and local levels, prevent state and localities from imposing multiple and discriminatory taxes on Internet commerce, ensure that only one state can tax each transaction and prevent online sales from being taxed at a higher rate than in-person sales.  To these ends, both the U.S. House and U.S. Senate has introduced bills that would prevent Internet access taxes from negatively impacting consumers. If the bills are not passed, however, and the Commission adopts its anticipated slate of open Internet rules, people will be faced with new costs that could make broadband access a less affordable proposition.

As a gateway to economic, educational and entrepreneurial opportunities, Internet technologies continues to help spur growth and innovation. But, while the Internet has become a must-have in most households there is still a digital divide between lower income and minority populations in regards to access. As the years progress, numerous organizations and individuals are working to close that divide but Internet taxation could be the biggest barrier to broadband adoption and affordability.

With the changes that are expected to come within the next couple of months and years to the telecommunications industry, Internet taxation is a game-changing concern.