Is a Temporary Moratorium on Internet Taxes Better for Keeping Pace with New Technologies?

It appears that Senator Lamar Alexander has a different tactic in his opposition to a federal prohibition of the states ability to tax Internet access (he’s been an ardent with his states’ rights rhetoric in the past). 

In support of a temporary ban, not a permanent one, he’s saying that it’s in the public interest that Congress periodically review the ban so that it can keep up with new technologies. He even says that "since the moratorium was enacted in 1998, we’ve extended it twice while changing the law substantially to meet changing technology." Um, not really. 

The Senator has it backwards about why we had to revise the moratorium twice. It’s not to update the law for new technologies. Instead, it’s to close loopholes that states have used to tax what the Moratorium said they could not tax.

Note this excerpt from the House Judiciary Committee report: 

While it is true that Congress has made changes to the law virtually every time it has extended the moratorium, those changes have largely been directed at preventing states from circumventing the law….For example, the definition of ‘‘Internet access’’ was modified in 2004 to prevent states from taxing Internet access providers that purchase capacity over wire, cable, fiber to connect end-users to the Internet backbone. That definition is modified again in this bill, also to ensure that States do not tax the Internet backbone. Why does Congress have to make this change again? Because eight States (AL, FL,  IL, MN, MO, NH, PA, WA) continue to tax the Internet backbone, despite Congress’ clear admonitions to the contrary.

Now’s also a good time to remind the Senator that rural areas of Tennessee aren’t going to get the next generation of broadband buildout if new taxes suppress consumer demand. Here’s why:

If rural households are facing an extra $10 a month in taxes for internet access, there are going to be fewer households adopting.  It’s just economics.

When a network company decides where and when to invest in building-out its network, they compare costs with the likely subscriber base.  Low-density areas are expensive to build, and if the adoption rate is low they can’t earn a return on investment.  A new tax that adds 15-20% to the monthly cost of internet means fewer subscribers, so some areas are going to slip to the bottom of the list for new deployment.  Again, it’s just economics.

Bottom line is that many rural families won’t even have a choice about broadband since the networks haven’t got around to deploying in their communities. And it means fewer work-at-home opportunities for rural folks, too.

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