Congress Puts to Rest the Great Internet Tax Hoax of 2014

Congress passed the $1.1 trillion spending package, which includes a provision to extend a moratorium on local and state taxes for Internet sales and services.

The Internet Tax Freedom Act (ITFA), reauthorized through October 2015, bans states from imposing taxes on Internet access no matter how the FCC classifies it. This extension erases any concern that reclassifying Internet-access services under Title II of the Communications Act could lead to a new tax burden on consumers. Industry-backed economists from the Progressive Policy Institute (PPI) had claimed reclassification could lead to as much as $15 billion in new taxes -- a claim repeated in the press and in cable-industry advertising that targets network neutrality rules.

The renewal of this legislation reaffirms that there is no threat of new taxes from Title II. When Congress amended the ITFA's definitions in 2004, it excluded from taxation telecommunications services used to enable Internet access. At the time, Congress sought to address the transition from the dial-up era to the broadband era, as DSL was then considered a Title II service. Free Press sent a letter to the Federal Communications Commission highlighting multiple errors in PPI's analysis and further clarifying that Title II reclassification would result in no new taxes on Internet access.

According to the letter, "Ignoring or omitting any reference whatsoever to the tax legislation at the crux of this debate is an odd choice to say the least, and one that destroys any credibility of the parties making this claim about new taxes. But the meaning of the ITFA is clear, and it clearly precludes state and local taxes on Internet access no matter whether the FCC classifies it as a telecommunications service.”