Several U.S. States Now Taxing Internet-Related Services

In 1999, the U.S. Congress passed the Internet Tax Freedom Act (ITFA) which exempted Internet access from state and local taxes. In 2001, the moratorium was extended. It is now set to expire on November 1, 2003 and it is unclear whether the exemption will be extended past that date. Congress is under considerable pressure from state and local governments to give them access to this new revenue source. Internet providers have concerns about the administrative burden of collecting taxes for a multitude of jurisdictions and are wary of turning off consumers. In the meantime, it has been reported that at least 18 states have already begun imposing sales taxes on Internet access. For example, Alabama, Florida and Kentucky are currently assessing sales taxes on consumer high-speed DSL (digital subscriber line) service. Maryland, Virginia and 13 other states have passed laws requiring Internet access to be taxed when it is "bundled" with other taxable telecommunication services (such as regular telephone service). The taxing states contend that DSL, a telecommunications service, does not qualify for the "Internet access" exemption in the ITFA, whereas dial-up connections, which do not require a dedicated phone line, are conceded to be a form of "Internet access". Earlier this month, EarthLink (one of the major U.S. national ISPs) announced that it will begin charging sales tax to its DSL users. For the text of the ITFA, visit: http://www.gseis.ucla.edu/iclp/itfa.htm News coverage of state taxation activities: http://www.washingtonpost.com/wp-dyn/articles/A33787-2003Jun9.html News coverage of the EarthLink announcement: http://news.com.com/2100-1038-1012879.html Summary by: Jennifer Jannuska