Congress Puts to Rest the Great Internet Tax Hoax of 2014

WASHINGTON -- On Saturday, 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 Net 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.

On Sunday, Free Press sent a letter to the FCC 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.”

Free Press Policy Director Matt Wood made the following statement:

"A recent glut of cable-industry ads and lobbying opposing Title II amplifies these lies about a supposed Internet tax. As Congress has just reaffirmed, any claim that Title II leads to new state and local taxes on Internet access is 100 percent false. The Internet Tax Freedom Act, renewed as part of the spending bill, definitively precludes any new state or local taxes on broadband Internet access — no matter how the FCC classifies broadband or chooses to use Title II.

"Big cable can now either admit that their scare tactics are entirely false, or argue that they’ll be subject to new taxes even though Congress has renewed an ironclad exemption. The latter would put cable and phone companies in the unusual position of pretending that new taxes on their operations are imminent just so they can claim a talking point against Title II.

"Many inside the Beltway have also suggested that Title II would lead to Universal Service Fund increases. As Thursday's FCC votes made clear, Title II has nothing to do with increases or decreases in the size of the federal fund. And new contributions to state universal service funds will be a non-issue once the FCC makes broadband an interstate telecom service.

"Just this week, years of ISP lies about how Title II would supposedly harm broadband investment — a claim Free Press has debunked dozens of times — collapsed when ISP executives admitted to shareholders that investment will be just fine. Now we can add their new taxes scare to the scrap heap, too. Cable and phone company propaganda can't and won't keep the FCC from doing its job, or from returning to the powerful Internet-user protections in Title II."