If the Internet Tax Moratorium Expires

By October 5, 2007Communications, Taxation

A reasonable-sounding argument in response to business concern about the Nov. 1 expiration of the federal moratorium on taxation of Internet access goes someline along these lines: Oh, now, really. Do you really states and cities are going to immediately raise taxes? Don’t you think they’ll be prevented from raising taxes by public opposition?

From Brian Faughan at The Worldwide Standard.com:

What are the stakes if the Internet Tax Moratorium is allowed to expire on November 1? Well, prior to the law’s enactment in 1998, ten states and the District of Columbia taxed internet access. Through grandfathering, nine states still do. In 2003 the Washington Post reported that 18 states were taxing internet access in violation of the law, most by reclassifying DSL broadband service to make it subject to telephone taxes. Other jurisdictions simply flouted the law. At least one state (Montana) has already adopted a statute to impose a tax once the federal prohibition expires. If Congress does not act in time, other states and localities will adopt taxes as well. All will press to be grandfathered in, whenever Congress gets around to renewing what will by then be a toothless ‘moratorium.’

How substantial will the tax burden be? According to Wyden, McCain, and Sununu, consumers will face new taxes for internet access upwards of 17 percent. Small businesses might face a substantially greater burden–which led the House Small Business Committee to hold a hearing recently on the threat.

The NAM has developed an online resource center devoted to the issue of Internet taxation.

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