Internet Tax Nondiscrimination Act (Pub. L. No. 108-435)

On December 3, 2004, President Bush signed into law the Internet Tax Nondiscrimination Act, which preempts state authority to levy taxes on the internet and certain telecommunications services. In 1999, Congress passed the Internet Tax Freedom Act, which created a four-year preemption of state authority to levy taxes on variety of internet services in order to give e-commerce a short grace period to develop and grow into a viable part of the market. The law explicitly did not apply to telecommunications services, which remained available for state taxation.

The Internet Tax Nondiscrimination Act substantially expands the preemptive effect of the pre-existing law. First, it extends the bar on state taxation of internet services for an additional four years. Second, it adds new language expanding the scope of the preemption by limiting state authority to tax telecommunications services delivered over the internet.

The effect of this preemption is to bar states from accessing a rapidly growing revenue base. Using numbers generated by the telecommunications industry, the Center for Budget and Policy Priorities estimates that the telecommunication industry generates nearly $12 billion in tax revenue to states annually. With the rapid move from traditional land line technology to internet-based technologies, this state revenue base could be imperiled. These concerns are shared by the National Governors Association, and the Multi State Tax Commission, as well as the Congressional Budget Office.

Sources:

Pub. L. No. 105-277 (1998); see also Cable or Phone? Difference Can be Taxing, New York Times (Apr. 5, 2004).

Pub. L. No. 105-277 (1998).

Center for Budget and Policy Priorities, A Permanent Ban on Internet Access Taxation Risks Serious Erosion of State and Local Telephone Tax Revenue as Phone Calls Migrate to the Internet (Feb. 11, 2004) (online at www.cbpp.org/2-11-04sfp.htm).

E.g., Multistate Tax Commission, Revenue Impact on State and Local Governments of Permanent Extension of the Internet Tax Freedom Act (Sept. 24, 2003) (online at www.mtc.gov/ITFAestimates092403.pdf).; House Judiciary Committee, Subcommittee on Commercial and Administrative Law, Testimony of Michigan Governor John Engler, Hearing on H.R. 1552 and H.R. 1675, both entitled the “Internet Tax Nondiscrimination Act”, 107th Cong., (June 26, 2001).