What Is the Internet Tax Freedom Act?
We all get those chain mail emails warning us that Congress is going to tax our correspondence over the Internet --- and it seems there is always someone gullible enough to forward them. We do pay to use the Internet, though, and many of us do pay "franchise taxes." Nobody, however, has ever had to put stamps on email. What government taxing bodies can and cannot tax is spelled out in the Internet Tax Freedom Act Amendment Act of 2007.
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Identification
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The Internet Tax Freedom Act (ITFA) of 1998 is an act of Congress regulating what kind of taxes may and may not be placed on Internet use in the United States. It was extended as the Internet Tax Nondiscrimination Act of 2004 and was extended as The Internet Tax Freedom Act Amendment Act of 2007. President Bush signed the current law, extending provisions to 2014. The act forbids taxation of Internet service based on amount (bit tax), type (bandwidth) or use (email) in order to make the medium affordable and accessible for commercial and personal use.
History
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Original attempts to tax Internet providers were based on regulatory taxes on traditional communications providers like telephone and cable companies, some of which provide income for groups like local government cable access production and school district media education. The confusion that ensued ended up in Congress. IFTA was co-sponsored by Representative Chris Cox (R-CA) and Senator Ron Wyden (D-OR) and adopted in 1998. IFTA also established the Advisory Commission on Electronic Commerce that met from 1999 to 2000. The Advisory Commission on Electronic Commerce recommended the repeal of the federal telecommunications tax and prohibition of taxation based on use, clearing the way for extension of IFTA in 2001 and as the Tax Nondiscrimination Act in 2004.
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Considerations
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Over 30,000 taxing entities exist in the United States. The international nature of the Internet makes any attempt to tax its use based on location almost impossible. Texas has a "grandfathered" (a tax that existed before the IFTA was passed) tax on Internet services and some states (Wisconsin and Tennessee among them) tax Internet providers as telecommunications companies. From its beginnings, the "borderless" Internet posed special problems in taxation. Congress took on the job of making sense out of the jumble of taxing patterns under its responsibility for the regulation of interstate commerce.
Function
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IFTA effectively stopped the efforts of taxing bodies to create multiple taxes based on usage. Since all taxes are eventually passed along to the user, this prevented a potential tax burden that would have eventually made Internet usage a luxury, limiting its usefulness in commerce and business and creating uneven taxation by municipalities and between states. IFTA has also provided a standard for other countries attempting to de-tangle the Internet taxation knot.
Misconceptions
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IFTA does not affect pre-existing income or franchise taxes on providers (ISPs). It also does not prohibit sales tax on goods purchased over the Internet. Sales taxes are generally based on the merchant's state law. What IFTA is intended to do is to reduce the layers of taxation and limit taxes to keep Internet service affordable. Also, that tax on email that your friends keep urging you to write your congressperson about? That idea was tossed out in 1998.
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