Broadband service gets permanent state, local tax exemption

14 February 2016 by Steve Blum

It’s blurry when you bundle, though.

A permanent ban on state and local taxes on Internet access was approved by the U.S. congress on Thursday, and sent on to the president, who said he will sign it. It’s a permanent extension of an existing law that says that states and local governments may not impose “taxes on Internet access” or “multiple or discriminatory taxes on electronic commerce”. The measure – which was tacked onto the end of an international trade bill – also phases out an exception for seven states that taxed Internet access before congress enacted the original ban. Subscribers in Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas and Wisconsin are now paying a total of $563 million a year in taxes on Internet access. That will end by 2020.

It’s not completely impossible, though, for a state or local government to tax you for Internet access. According to a report by the congressional research service

Internet access is often bundled with other services such as voice or video service. In these situations, if the ISP can reasonably separate the charges related to Internet access from the other service charges, the Internet access charges remain exempt from taxation; otherwise the Internet access charges can be taxed.

The things you do or buy on the Internet can be taxed, but the language about “multiple” taxes means you can only get tagged once for buying something. For example, you can’t be required to pay sales tax by two states at opposite ends – upload and download, say – of a transaction, unless the second state gives you a credit for the money you paid to the first state. “Discriminatory” means that tax rates can’t be higher for something just because it was purchased or delivered online.