| abstract | - The Internet Tax Freedom Act of 1998 (ITFA) was enacted on October 21, 1998. The ITFA placed a three-year moratorium on the ability of state and local governments to (1) impose new taxes on Internet access or (2) impose any multiple or discriminatory taxes on electronic commerce. The act grandfathered the state and local access taxes that were “generally imposed and actually enforced prior to October 1, 1998. . . .” This initial Internet tax moratorium expired on October 21, 2001. The Internet Tax Nondiscrimination Act was enacted on November 28, 2001. It provided for a two-year extension of the prior moratorium, through November 1, 2003. The moratorium was extended for an additional four years, through November 1, 2007, by Pub. L. No. 108-435 (Dec. 3, 2004). Taxes on Internet access that were in place before October 1, 1998, were protected by a grandfather clause. The latest extension also grandfathered pre-November 1, 2003, taxes (mostly on Digital Subscriber Line or DSL services) through November 1, 2005, and excluded from the moratorium taxes on voice or similar service utilizing Voice over Internet Protocol (VoIP). These services were not as prevalent at the time the original moratorium was enacted. As part of compromise negotiations in the 108th Congress, the grandfathering protection for Internet access taxes in Wisconsin was limited to three years (through November 1, 2006) instead of four, and the ability of Texas municipalities to collect franchise fees from telecommunications providers that use public lands was protected. The 2004 act included several modifications and refinements to the original ITFA. Specifically, the 2004 act:
* Extended the Internet tax moratorium for four years, retroactively one year to November 1, 2003, and forward three years until November 1, 2007. The moratorium bars state and local governments from imposing any new taxes on Internet access or imposing any multiple or discriminatory taxes on electronic commerce.
* Clarified that the term “tax on Internet access” applies regardless of whether the tax is imposed on a provider or buyer of Internet access.
* Made explicit that a “tax on Internet access” does not include a tax levied on net income, capital stock, net worth, or property value.
* Provided that the terms “Internet access” and “Internet access service” do “not include telecommunications services, except to the extent such services are purchased, used, or sold by a provider of Internet access to provide Internet access.” (This permits some portion of [telecommunications service]]s to be included under the tax moratorium.)
* Extended the grandfather protection from November 1, 2003, until November 1, 2007, for state and local governments, which taxed Internet access prior to October 1, 1998. An exception was made for a state telecommunications service tax in Wisconsin, for which protection was extended only until November 1, 2006. Protection was extended only until November 1, 2005, for taxes on Internet access that were generally imposed and actually enforced as of November 1, 2003. This provision applies mainly to taxes on Digital Subscriber Line (DSL) services.
* Explicitly protected the Texas municipal access line fee. This provision is intended to protect the ability of Texas municipalities to collect franchise fees from telecommunications providers that use public lands.
* Included a new accounting rule that charges for Internet access may be subject to taxation in cases where they are aggregated with charges for telecommunications services or other charges that are subject to taxation — unless the Internet access provider can reasonably identify the charges for Internet access.
* Stated that nothing in the act prevents the collection of any charges for federal or state universal service programs (for telephone service), or for state or local 911 and E911 (emergency call) services, nor does it affect any federal or state regulatory non-tax proceeding (such as FCC regulatory proceedings).
* Clarified that the moratorium does not apply to taxes on Voice over Internet Protocol (VoIP) services. This section does not apply to services that are incidental to Internet access, such as voice-capable e-mail or instant messaging, and
* provided for the GAO (Government Accountability Office) to study the effects of the Internet tax moratorium on the revenues of state and local governments and on the deployment and adoption of broadband technologies for Internet access throughout the United States, including under-served rural areas. The study was to compare deployment in states that tax broadband Internet access service with states that do not. The Comptroller General was to report the findings, conclusions, and any recommendations from the study to the Senate Committee on Commerce, Science, and Transportation and the House Committee on Energy and Commerce by November 1, 2005. The report was published in January 2006.
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