Sales Tax Articles
Sales Tax State Activity Update - June 2008
New York Provides Context for the Federal Internet Tax Freedom Act
The federal moratorium against the imposition of state and local taxes on Internet access, originally enacted by the 1998 Internet Tax Freedom Act (ITFA) and extended by the Internet Tax Nondiscrimination Act (ITNA), has been extended again, until November 1, 2014, under the federal Internet Tax Freedom Act Amendments Act of 2007 (Public Law 110-108) (ITFAA).
In addition, the ITFAA amended the federal definition of Internet accessfor purposes of the moratorium to include certain closely related Internet communications services, such as electronic mail services and instant messaging services. The sale of Internet access serviceis not subject to the state and local sales taxes under Articles 28 and 29 of the Tax Law or to the telecommunications excise tax imposed by section186-e of the Tax Law.
Internet access, for purposes of the federal moratorium, now includes the following services: home page, electronic mail, instant messaging, video clips (e.g., movie previews and portions or short clips of a complete video); and personal electronic storage capacity. These services are included in the federal moratorium regardless of whether they are furnished as part of the Internet connection service, or if they are purchased and furnished separately.
However, any form of telephony (e.g., private telecommunications networks), including Voice over Internet Protocol (VoIP), network services and data transmission services, other than telecommunications services used by an Internet Service Provider (ISP) to connect customers to the Internet, are not included under the federal moratorium. Accordingly, these forms of telephony continue to be subject to New York State and local sales taxes and the telecommunications excise tax.
The ITFAA also amended various grandfather provisions under the Act. The new seven year grandfather provision has no effect for New York Sales and telecommunications excise tax because internet access was previously exempted under New York statutory and administrative provisions. However, other provisions do affect New York State's telecommunications excise tax. Under the ITFAA amendments, telecommunications services purchased, used or sold by ISPs to provide Internet access will continue to be subject to New York State's excise tax until June 30, 2008. Beginning July 1, 2008, telecommunications services as described in the preceding sentence do fall under the federal moratorium and, as of that date, will no longer be subject to New York's excise tax.
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