The Permanent Internet Tax Freedom Act (PITFA) was passed by the U.S. House of Representatives on Jul. 15 and called for a permanent extension on the moratorium on taxes levied on Internet access. This moratorium is set to expire Nov. 1, and a coalition of 42 national and state organizations have urged the U.S. Senate to pass the bill before the deadline.
The concerns of the coalition were noted in a letter addressed to the Senate. The letter stated the average sales tax rate for video services is 12 percent, and the average for voice services is 17 percent. Meanwhile, the average general sales tax rate is 7 percent. The coalition said a continued pattern of excessive taxes will constrain growth for the digital economy.
“Allowing the internet access tax moratorium to lapse would certainly lead to higher tax rates on consumers and thus reduce the rate of adoption and innovation,” the letter said. “Higher taxes on internet access undermines American economic competitiveness and growth.”
Possible outcomes for Internet service providers (ISPs)
If a lapse on the moratorium were to occur, companies that offer Internet connectivity have as much to lose as consumers. According to a 2013 report from the Washington Post, the U.S. has slower broadband speeds and higher Internet costs compared to many countries across the world. Although there are some ISPs that are turning to fiber connections to increase speed, many consumers still aren’t happy with the services they receive for the price they pay. Additional taxes could further hurt ISP sales.
“Americans would be overjoyed to see Congress agree and pass legislation that protects consumers from increased costs when accessing and using the Internet, and protects them from discriminatory or duplicative taxation of Internet commerce,” the letter said. “The FCC’s National Broadband Plan states that the largest barrier to consumer adoption and expanded use of Internet based services is cost.”
Despite support for the continuation of the moratorium, ISPs may have to meet the suspended tax compliance measures. Currently, PITFA is being held up in the Senate by some congress members who link it with the Marketplace Fairness Act, which would allow states to levy sales tax on online transactions, Tax-News reported. Furthermore, the midterm elections are coming up, which could cause another delay for senate action on PITFA.
