Congress should exempt wired and wireless broadband Internet access from federal, state, and local taxes and extend and expand the moratorium on Internet taxes.
Internet access is a fundamental building block of the digital economy, a key enabler of many applications and services, and a prerequisite for participating in our digital society. Government should support access to this basic public good by eliminating taxes on Internet access, including broadband. Specifically, Congress should make permanent the current moratorium on Internet access taxes and eliminate the grandfather clause which allows some states to tax Internet access. In addition, the ban on Internet taxes should be clarified to include the underlying transport services acquired by ISPs, such as the wire, cable, or fiber used to carry traffic from customers to the Internet. Currently, some states tax the underlying transport for broadband Internet access, a cost which ISPs then pass on to consumers in the form of a tax recovery fee. In addition, Congress should ban state and local discriminatory taxes on wireless services. Given that the average tax on telecommunication services is 13.5 percent, more than twice the average tax rate on all other goods and services, Congress should act to ensure that the short-term fiscal interests of states do not trump the long-term economic and social interests of the nation.