US sneaks out tax break for net firms

Internet firms in the US won’t be subjected to a new level of taxation after a one-year extension on an Internet access taxes freeze was slipped into a $1.1 trillion [£700 billion] government spending bill passed over the weekend.

The moratorium on tax is part of the Internet Tax Freedom Act that passed the House of Representatives in July and makes it illegal for US states to charge Internet-specific taxes on things such as email or bandwidth.

It is the fourth time that an extension has been applied after the first one was passed in 1998 and certain people are of the opinion that if the extension hadn’t been applied it would have opened the floodgates for individual states to levy taxes on firms.

“A fair and open Internet is an engine of economic growth in America, a launching pad for entrepreneurs and history’s most powerful tool of communication. By extending this bill, the Congress has, for the short term, ensured that this long-standing policy keeps Internet access tax-free,” said Senator Ron Wyden [D-Oregon], who has been a long-time proponent of the legislation.

Opponents of the extension have been calling for a law that allows states to levy taxes on Internet merchants located outside their borders, although Congress has yet to take much notice and a renewed effort is likely in the next 12 months. States are currently only able to collect sales taxes and other related taxes that have offline uses.

The freeze doesn’t apply to federal taxes on broadband services and there is a worry that any reclassification of the Internet as a utility under new net neutrality rules could lead to new charges. The Federal Communications Commission [FCC] currently levies a 16 per cent charge on telephone bills to fund the Universal Service Fund that pays for telephone and broadband service in rural areas. Should the Internet become a utility then it could be subject to this tax.

“Given past experience with state and local tax authorities, we have every reason to believe that an FCC decision to reclassify broadband as a telecommunications service will lead these authorities to revisit their treatment of these services and to explore ways of circumventing [the law’s] protections,” the National Cable and Telecommunications Association said in a statement, according to PC World.

With Internet reclassification looking like even more of a possibility, the next 12 months have the ability to do a huge amount to shape the Internet landscape of the coming five years – or further.

Image Credit: Flickr (dktrpepr)