Sales Tax Articles
Sales Tax State Activity Update - November 2007
Seven More Years â€" Ban on Internet Taxation Continues
On October 31, 2007, President Bush signed a law extending the ban on state and local taxes imposed upon Internet access for an additional seven years. Without Congressional action, the ban was set to expire on November 1, 2007.
The Act, known as the Internet Tax Freedom Act Amendments Act of 2007, includes the following provisions:
The moratorium on state and local taxes on Internet access and multiple and discriminatory taxes on electronic commerce is extended until November 1, 2014.
The states that were "grandfathered" under the original Act are allowed to continue to impose tax on internet access through November 1, 2014. However, the grandfather clause will not apply to any state that had more than 24 months prior to the enactment of this legislation enacted legislation to repeal the state's tax on Internet access or issued a rule by the appropriate state agency that they have decided to no longer tax internet access.
State and local governments that continue to impose tax on telecommunication service that is purchased, used or sold by a provider of Internet access have until June 30, 2008 to end that practice. However, this provision does not apply if an appropriate administrative agency of a state of political subdivision of a state issued a public ruling applying the tax prior to July 1, 2007 or the tax was the subject of litigation that began prior to July 1, 2007. (Some state's claim that the 2004 renewal of the moratorium enabled them to tax telecommunication services. This provision is intended to resolve issues regarding state and local taxation of telecommunication services purchased by ISPs that connect their customers to the Internet.)
A new definition of "Internet Access" is enacted. It means a service that enables users to connect to the Internet to access content, information or other services. The definition also includes the purchase, use or sale of telecommunications by an Internet service provider that enables users to access content, information or other services over the Internet. It also includes services that are incidental to the provision of Internet access including home page, email and instant messaging (including voice and video-capable email and instant messaging), video clips and personal electronic storage capacity regardless of whether they are or are not packaged with Internet access services. However, internet access does not include voice, audio or video programming or other products that utilize Internet protocol (or any successor protocol) for which there is a charge, regardless of whether the charge is separately stated or bundled with the charge for Internet access.
The moratorium clarifies that it does not apply to a state tax that is expressly levied on commercial activity, modified gross receipts, taxable margin, or the gross income of the business and as long as it is imposed on a broad range of business activity and is not discriminatory in its application to providers of communication services, Internet access or telecommunications. (Note, this means that ISP's may be taxed on their receipts under the Ohio commercial activity tax, the Texas margin tax and the Washington B&O tax.)
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