Broadband tax ban isn't as complete as you might think

28 February 2016 by Steve Blum


From a subscriber’s point of view, there is no state or local tax, sales or otherwise, on “Internet access service”. It’s banned by federal law. But that doesn’t mean Internet service is completely tax free. Accord to a report by the congressional research service, the Internet service tax ban only applies to end users…

Internet access service is defined as “a service that enables users to access content, information, electronic mail, or other services offered over the Internet and may also include access to proprietary content, information, and other services as part of a package of services offered to consumers”.

In other words, broadband companies can be taxed on the stuff they have to buy to provision Internet access service, and they can pass the cost along to their customers…

The sale and purchase of Internet access services is exempt from taxation under [the Internet tax freedom act]; however, costs related to acquired services, such as an Internet service provider (ISP) leasing capacity over fiber, are not covered by the moratorium and thus potentially subject to taxation.

Another gotcha: this particular ban doesn’t apply to federal taxes. The Federal Communications Commission’s decision to reclassify broadband as a common carrier telecommunications service opens the door to charging the same types of federal fees, for example for universal service programs, as are applied to telephone service. FCC chairman Tom Wheeler strenuously denied any such intent, but he or his successors can change their minds at any time. Congressional republicans are batting around bills that would bake that intent into law, but so far haven’t agreed on anything.