Internet Taxation and Telecom

FCC Unveils Broadband and Telemedicine Initiative

November 19 -- On November 13, Federal Communications Commission (FCC) Chairman Kevin Marin announced that he will dedicate $400 million over three years for the construction of broadband networks to link healthcare facilities and providers. The measure will connect 6,000 facilities in 42 states.

Funding will be available through the FCC’s Rural Health Care Pilot program and will fund up to 85 percent of an applicant’s costs for deploying a dedicated broadband network connecting health care providers. It provides up to 85 percent of an applicant’s cost for connecting a state or regional network to the Internet.

For more information on the program, visit www.fcc.gov/cgb/rural/rhcp.html.

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Broadband Mapping Bill Passes in House

November 19 -- On November 13, the House adopted legislation (HR 3919) to help identify the nationwide availability of broadband service. The measure now awaits Senate consideration.

The legislation is intended to generate a detailed picture of the nation’s broadband market to help guide federal broadband policies. It directs the Federal Communications Commission (FCC) to report annually on the deployment of Internet services across the country. The agency would be required to report speed of service and type of technology. The measure also requires the FCC to compare U.S. broadband capabilities with 75 communities in at least 25 other countries.

The bill directs the National Telecommunications and Information Administration (NTIA) to administer a grant program designed to assist states and localities in the mapping effort. The bill authorizes $300 million through FY2010 for the grants and sets limits to ensure that only one entity maps a state at a time. Grant funds will help produce a public, online broadband map that shows the types of broadband access, location and provider.

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House Clears Seven-Year Extension of Internet Tax Moratorium

November 12 -- On October 29, the House cleared legislation (HR 3678) to continue the current moratorium on taxing Internet access for seven more years. The bill originally called for a four-year extension, but it was amended by the Senate on October 24 to lengthen the ban to seven years.

The bill updates the current definition of “Internet access” to ensure that services such as email and instant messaging are free from state and local taxes. However, Internet video and phone services are subject to taxation under the legislation.

States with laws requiring payments from Internet providers will receive an exemption allowing them to structure their taxes as a substitute for state corporate income taxes that are not on Internet access. In order for states to qualify for the exemption they must have enacted their laws between June 20, 2005 and November 1, 2007.

The access tax ban has been extended twice since it was first enacted in 1998.

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House Committee Approves Extension of Internet Tax Moratorium

October 15 -- On October 10, the House Judiciary Committee approved a four-year extension of the Internet tax moratorium (HR 3678), prohibiting most states and local governments from taxing Internet access through November 1, 2011.

The bill updates the current definition of “Internet access” to ensure that services such as e-mail and instant messaging are free of state and local taxes. However, Internet video and phone services are subject to taxation under the legislation.

States with laws requiring payments from Internet providers will receive an exemption allowing them to structure their taxes as a substitute for state corporate income taxes that are not on Internet access. In order for states to qualify for the exemption they must have enacted their laws between June 20, 2005 and November 1, 2007.

Leaders of the Senate Commerce, Science and Transportation Committee are negotiating legislation (S 1453) implementing a six-year extension of the tax moratorium law. The Internet access-tax ban has been extended twice since it was first enacted in 1998.

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Broadband Deployment Enhancing Economic Growth, According to New MIT Study

April 24 -- Broadband access does enhance economic growth and performance of local communities and the assumed economic impacts of broadband are real and measurable, according to a preliminary report by MIT's Communications Futures Program. Measuring Broadband's Economic Impact was funded by the Economic Development Administration (EDA).

The research consortium conducted a comprehensive review of the economic performance data of more than 22,000 zip codes across the nation between 1998 and 2002. The preliminary report found that "communities in which mass-market broadband was available by December 1999 experienced more rapid growth in employment, the number of businesses overall and businesses in IT-intensive sectors, relative to comparable communities without broadband at that time."

The report notes that "broadband is clearly related to economic well-being and is thus a critical component of our national communication infrastructure." In addition, researchers point out that "the implication for economic development professionals is that a portfolio of broadband-related policy interventions that is reasonably balanced (i.e. also pays attention to demand-side issues such as training) is more likely to lead to positive economic outcomes than a single-minded focus on availability."

To download the report, visit the EDA Web site at www.eda.gov/PDF/MITCMUBBImpactReport.pdf.

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Universal Service Reform Bill Introduced in House

April 4 -- On March 30, Reps. Lee Terry (R-NE) and Rick Boucher (D-VA) introduced legislation (HR 5072) to reform the Universal Service Fund (USF). The measure will expand payments into the fund, cap the growth of the fund and allow it to be used for deploying high-speed broadband service.

Established in the 1996 Telecommunications Act, the USF provides telephone service discounts to consumers with qualifying low-incomes and provides financial support to companies that provide telecommunications services in areas of where the cost of providing service is high. Currently, all telecommunications companies that provide service between states are required to contribute to the fund.

Under the measure, payments into the fund would be expanded under a requirement that internet service providers contribute to the fund. The bill would control the growth of the fund by capping all high-cost support payments and will encourage the deployment of broadband, especially in rural areas, by allowing recipients to use universal service support to deploy broadband within their service areas.

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Rural Caucus Outlines Telecom Principles

July 1 -- On June 28, leaders of the Congressional Rural Caucus held a press conference to announce their principles for broad telecommunications reform. During the event, members cited universal service fund reforms and possible expansion of the fund to include broadband as key components of any rewrite of the 1996 Telecommunications Act.

In addition to the press conference, the caucus put together a list of nine principles for telecommunications reform, and sent them along with a letter signed by more than 60 members to the leaders of the House Energy and Commerce Committee. The committee is currently contemplating a rewrite of the 1996 act.

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Internet Moratorium Extended

December 21 -- On December 3, President Bush signed into law legislation (S 150) imposing a three-year moratorium on state taxation of Internet access services. The measure was approved by the House on November 19 on a voice vote after supporters of a competing House bill (HR 49), which would have established a permanent tax ban, agreed to accept the Senate version with minor modifications.

The measure bans access taxes through November 1, 2007 and is effective retroactively to the expiration of the previous ban (November 1, 2003). It covers all forms of consumer Internet access, including telephone-based, satellite and cable.

Nine states that were allowed to tax dial-up services under the old ban would continue to be exempt for the duration of the new ban. States that tax digital subscriber lines (DSL), a service that was not covered under the old ban, would be grandfathered for two years. In addition, the bill continues to allow states to tax voice-over-Internet-protocol (VOIP). It is expected that the issue of Internet access taxation will reemerge next year when Congress considers a rewrite of telecommunications laws.

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The Truth About Collecting Sales Tax Over the Internet

For Release: September 14,1999
Contact: Shawn Bullard, 202-942-4212

Myth: The Internet Tax Freedom Act of 1998 gave Americans a three-year sales tax holiday.
Fact: The moratorium only affected "new" taxes. It did not impact existing sales taxes. While the law requires buyers who weren't charged sales tax to voluntarily hand it over to the state on their own, few comply.

Myth: E-commerce companies are "infant" fledgling businesses that need a break.
Fact: Massachusetts-based Forrester Research expects electronic sales to surpass $184 billion by 2004.

Myth: E-commerce businesses argue that the software doesn't exist that can handle complicated tax collection scenarios.
Fact: Software does exist, and is already used by businesses across the country. Taxware International (www.taxware.com), considered the market leader, integrates with Netscape's CommerceXpert software, to provide accurate sales tax calculations. IBM and Open Market have similar systems, as well as DPC Computers' Zipsales (salestax.com) and Vertex's Quantum (vertexinc.com). ­ C/NET

Myth: But the software can't handle all the different taxing jurisdictions found in the U.S. and classes of products taxed.
Fact: It can tax different products at different rates.
It can tax at all jurisdiction levels.
It can exclude tax-free products automatically.
It can accommodate special tax situations (such as a local jurisdiction's annual tax-free days).

Myth: Since tax laws are always changing, no software can keep up.
Fact: Several of the commercial software companies are providing the most complex level of tax compliance by continuously expanding and updating their products. Some e-mail upgrades to their clients on an average of every 28 days. The upgrade takes only minutes.

Myth: The software is too expensive for most businesses.
Fact: Some of the tax software solutions for e-commerce sales retail for as little as $1,000.

Myth: Collecting sales taxes adds to business costs.
Fact: Many states allow vendors to retain a portion of the sales taxes they collect. The portions retained by vendors across the nation can range from 1% of total sales tax revenue collected in Indiana to a high of 4% of total sales tax revenue collected by small vendors in Virginia.

Myth: Tracking of local sales taxes just can't be done.
Fact: "By offering integrated calculation and tracking of local sales taxes, Netscape is making it even easier for merchants and publishers to conduct commerce on the Internet." Jim Sha, Vice President and General Manager, Internet Applications, Netscape Communications Corp. ­ Taxware, 1999

Myth: The total sales taxes lost is "insignificant."
Fact: According to the National Association of Counties' 1998 Wage and Salary Survey median for the position, recent estimates of 1998 losses of $170 million would have enabled every county in the nation (3,066) to hire two additional law enforcement officiers.

Myth: Those businesses that collect sales taxes on e-commerce purchases will not survive long on the Internet.
Fact: Some of the most recognizable corporations collect taxes on e-commerce related sales, such as IBM, Mobil, Microsoft, JCPenny, Staples, Gateway Computers, Circuit City and The Gap, and their sales continue to rise dramatically.

Compiled by the National Association of Counties, 9/99

Link to the Advisory Commission on Electronic Commerce (ACEC)

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