Internet Tax Vote

September 17, 2003 7:51 AM

Vote Set for Internet Tax Moratorium "The U.S. House of Representatives today is expected to vote overwhelmingly to extend and expand the five-year-old Internet tax moratorium." Cool.
posted by MrMoonPie (15 comments total)

I think it's HR49 they're voting on.
posted by MrMoonPie at 7:54 AM on September 17, 2003

Here's the text. Here's the report.
posted by MrMoonPie at 7:58 AM on September 17, 2003

The bill also would phase out an exception that allows about 10 states -- and several local jurisdictions -- to continue taxing Internet access because they already had a law in place before the ban was enacted. The 10 states are Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington and Wisconsin.


Score! Thanks for the article, Moonie. The bit at the end about sales tax on internet purchases was interesting as well.
posted by Ufez Jones at 8:34 AM on September 17, 2003

Can you explain why you think this is such a good thing? If you're in favor of smaller government and less taxation, then it's obviously good, but that's not really a position anyone can hold on MeFi without being run out of town. If you're in favor of using tax policy to encourage social change, wouldn't there be lots of problems more important than cheaper broadband access for the middle class that you could solve with $120million?

Personally I like it because I like the Internet, but that's a purely selfish motive.
posted by fuzz at 8:50 AM on September 17, 2003

Can anyone give me a good rationale for why Internet access (being - overwhelmingly - a luxury item for most people) shouldn't be taxed, while necessity items like clothing and food are (in most states)?
posted by UKnowForKids at 8:51 AM on September 17, 2003

Or, what fuzz said.
posted by UKnowForKids at 8:51 AM on September 17, 2003

You can add Indiana to that list when it comes to taxing Internet access via cable modem. I went around and around with the Indiana Department of Revenue on that one.

A while back, I had a cable modem from AT&T (now Comcast). I no longer had cable TV service though because another cable provider started up in my area (WideOpenWest) and I went with them because AT&T tv service was horrible here. So I had a cable modem only (WOW didn't have cable modems in my area yet). Yet sales tax appeared as a line item on my bill. I asked AT&T about it and they told me they were required to collect tax under Indiana law, in conflict with the federal ITM, and that I would need to take it up with the state.

First off, Indiana in general, does not tax services, only goods. They do, however, as I found out from the IDR (who directed me to the relevant Indiana Code) tax "public utilities" which cable TV is considered. I pointed out that I wasn't receiving TV service, only Internet, and that the federal ITM applies. Didn't matter. Public utility. They claimed I wasn't being taxed on the Internet service, only the method (cable) by which it was being provided. WTF? A call to Ameritech at the time verified that sales tax wasn't being charged on DSL, even though the same would apply there according to Indiana law. DSL, unfortunately, wasn't available in my area at that time though.

Getting nowhere with the state, I wrote Rep. Cox but received no reply at all. His site and his press releases still list a number of states with "loopholes" to get around the federal law, but it still does not list Indiana. Earlier this year, however, I rid myself of the scourge that is AT&T and did get a cable modem from WOW. Looking at my current bill, I am only getting charged sales tax on that portion of my bill relevant to cable tv, not cable modem service. So they got it right.

On preview: UKnowForKids, I agree, it should be taxed for the reason you stated. I contend, however, that in the case of Indiana where "services" are not taxed, that it should not be.
posted by AstroGuy at 9:02 AM on September 17, 2003

Can you explain why you think this is such a good thing?

It's a good thing here because we all like the internet, even if it is on computers these days.

A good but not consistent reason for barring states from taxing internet access is that it's inherently an interstate commerce -- you get onto the internet to get information and do stuff across state (and national) lines. So taxing net access is taxing interstate commerce, which means that states could tax net access for regulatory social-engineering reasons, or in some ass-hatted attempt to protect their own firms.

But states don't get to regulate interstate commerce -- only the Feds can do that, so only the Feds should tax it. So the states shouldn't be taxing stuff that's more-or-less inherently interstate commerce.

Which isn't to say that we actually follow that principle -- if we did, there'd be no state taxes on interstate phone calls, or on plane tickets across state lines, etc etc. But there probably shouldn't be. Ditto with sales tax collected on interstate net/phone/mailorder purchases.

I'd have no beef with the Feds taxing net access, or net purchases. I'd have no beef with the Feds doing so and giving all the money to the states, if they want. But I don't like the states doing federal stuff.
posted by ROU_Xenophobe at 9:27 AM on September 17, 2003

Of course, Michigan still insists that you're supposed to pay "Use tax" on stuff purchased over the internet. (Hell, theoretically, they say you should pay it if you go somewhere and buy something where that state's sales tax is less than michigan's).

Use tax of 6 percent is due on the total price (including shipping and handling charges) of all taxable items brought into Michigan, purchases by mail from out-of-state retailers, and purchases made on the Internet. It applies to purchases made in foreign countries as well as other states.

and

The Internet Tax Freedom Act does not prohibit the sales and use tax on consumer purchases over the Internet by Michigan residents that are taxable under Michigan law. Only new taxes on Internet access are prohibited.

Now, the page I got this from doesn't seem to mention the sales tax less than michigan's bit, but I know I've seen it, and this is just a brief description. Said page is here.
posted by piper28 at 10:03 AM on September 17, 2003

"Can anyone give me a good rationale for why Internet access (being - overwhelmingly - a luxury item for most people) shouldn't be taxed, while necessity items like clothing and food are (in most states)?"

I don't understand the rationale for taxation, period. I don't feel represented at all, so I find the all sides of the debate absurd. Somewhere between the Boston Tea Party, and the recent Starbucks employees throwing coffee into a lake near Seattle, things have gone seriously awry.
posted by ZachsMind at 10:33 AM on September 17, 2003

Parallels to telephone service:

All Americans today pay a telephone excise tax equal to 3% of their monthly telephone bill. Congress first adopted a telephone excise tax in 1898 to help finance the Spanish-American war. The war ended within a year or so. One hundred years later, the telephone excise tax is still with us.

The tax is an object lesson in how supposedly temporary government programs and taxes, once adopted, never end. For the telephone excise tax has been continued for 100 years now on one temporary excuse after another. The tax was actually phased out after the Spanish-American war, but was reimposed on long distance calls in 1914, and then fully reinstated to help finance World War I. It was brought back to bolster government revenues during the Great Depression, and then to help pay for World War II and the Korean War.

In 1966, the tax was increased from 3% of telephone bills to 10% to help pay for the Vietnam war. After the war it was phased down to 3%, and then extended repeatedly in the 1980s to help cover the deficit. The tax was permanently set at 3% in the 1990 budget deal to close the deficit. Now the deficit is long gone and the budget is in surplus*, but the telephone tax is still with us.

The tax was originally adopted as a luxury tax on the rich, as only higher income people had phones 100 years ago. Today, the tax is a regressive burden on low income workers, as it amounts to a much larger share of the meager incomes of the poor than of the rich.

*Or was, until the Republicans controlled the White House.
posted by pmurray63 at 10:59 AM on September 17, 2003

ZachsMind: I don't understand the rationale for taxation, period. I don't feel represented at all, so I find the all sides of the debate absurd. Somewhere between the Boston Tea Party, and the recent Starbucks employees throwing coffee into a lake near Seattle, things have gone seriously awry.

Pave your own roads much?
posted by UKnowForKids at 11:45 AM on September 17, 2003

I don't understand the rationale for taxation, period. I don't feel represented at all, so I find the all sides of the debate absurd. Somewhere between the Boston Tea Party, and the recent Starbucks employees throwing coffee into a lake near Seattle, things have gone seriously awry.

If all taxes went away and you were forced to pay for only the services you actually used, you would still pay your local cop, your utility company, your national defense company, your health care company, etc. The only difference would be that someone would actually be making a profit off these services.

And, you'd probably end up spending more out of pocket unless you are very well off.

Or, what UKnowForKids said.
posted by bshort at 2:35 PM on September 17, 2003

I don't feel represented at all

What's representation got to do with tax? There are very many people in the US who pay all sorts of taxes but have no representation in government.
posted by normy at 5:00 PM on September 17, 2003

ZachsMind: Could you please drop everything and come put out this house fire?
posted by quonsar at 5:21 PM on September 17, 2003