This week the President signed into law legislation authored by South Dakota’s US Senator John Thune known as the Internet Tax Freedom Act (ITFA). By permanently barring state and local government from taxing access to the Internet, ITFA is a huge victory for both consumers and small businesses.
Over 10,000 different state and local taxing jurisdictions across the country apply high tax rates on communications services. While state tax rates generally run at approximately seven percent, telephone and cable services are taxed at a rate of 17% and 12% respectively. If the Internet is taxed in the same way, consumers would be burdened with an excessive 25% in total taxes on communications services.
Since the early days of the Internet, Congress had passed a series of bills temporarily preventing state and local governments from applying these extremely high taxes to Internet access. As noted by the Internet Tax Freedom Act Coalition:
Originally enacted in 1998, and extended seven times with overwhelming bipartisan support, ITFA has protected most consumers from paying state and local taxes on their Internet access services. It has also protected Internet commerce from multiple and discriminatory taxation. Without this legislation, Internet access would likely be subject to the high rates of taxation currently imposed on traditional telecommunication services – which are often taxed at rates more than double those imposed on other goods and services. A threat made even more imminent after the FCC’s reclassification of broadband services as a telecommunications service.
South Dakota is one of seven states that have collected Internet taxes. For South Dakotans, combined state and local internet taxes cost about $15 million a year. So it is no surprise that ITFA garnered support from a broad collection of lawmakers, manufacturers, and technology companies. These seven states now have until summer of 2020 to phase out their taxes.
Cost is a huge factor in determining whether or not consumers are able to access the Internet. Making Internet services more affordable will help fuel economic growth in our state connecting more budding entrepreneurs to new markets domestically and abroad. There are a lot more potential Internet entrepreneurs in our state than little old me. The Internet can help us become our own success story.
Eliminating the Internet tax also opens a gateway to educational opportunities and better healthcare services to more consumers regardless of income or residence.
South Dakotans everywhere should congratulate and thank Senator Thune for his strong leadership to engender the necessary support to get this legislation across the finish line. The result will be higher broadband adoption rates among consumers and a ‘net’ win for all Americans.