Karen Kerrigan of the Small Business and Entrepreneur Council has penned an excellent piece on the importance of extending the Internet Tax Moratorium for small businesses.   Taxes add to the costs of services and products and added costs will put pressure on prices.   There is widespread acknowledgement that it is important to society and to our economy to promote broadband deployment and connect as many Americans as possible to the Internet through high speed connections.   Allowing broadband connections to be subject to a potential myriad of state and local taxes will only make the effort to expand broadband networks and connect greater numbers of Americans more challenging.

 

Many state and local government officials argue against extending the moratorium.   They argue that “Internet access services” (broadband is such a service)  should  be subject to traditional utility-type taxes; and they contend that if there is a moratorium on these taxes, it should on be for a limited period of time, thus forcing  a re-extension battle every few years.     Keeping broadband prices low is a key means of encouraging more people to sign up for high speed connections so they can more readily access the services they need.  If broadband is subject to state and local telecom taxes, the tax rate on these services will in many instances increase the price to consumers for DSL or cable modem service by over 25 percent. 

 

The fact is that while broadband networks continue to reach more and more Americans and are becoming more capable through the use of new technologies like fiber, the broadband market is still far from established.   The early adopters, advanced home users and technology lovers all have broadband.  But now begins the challenging work of attracting older Americans, low income consumers and a range of ethnic groups, all of whom have historically low adoption levels with respect to broadband.  Now is not the time to open the door to added costs in the form of a potential wave of new state and local taxes.  Can you imagine government imposing a tax every time you entered the library?   The Internet is now the world’s biggest library and source of information for many Americans and there is a real danger that without the moratorium in place, new fees and taxes could well be imposed that would increase the costs of accessing this “global library”. 

 

The range of taxes that may be imposed once the moratorium is opened could be far greater than a simple broadband connection tax.  No one can predict the future but a quick look at the typical cellular phone bill shows that a wide number of taxes and fees are imposed, and at very high rates – almost double the usual tax rate.    Some state and local governments have tried to impose taxes on cellular service to boost general revenues even though cellular companies do pay property taxes and general business taxes like other companies.  It is not inconceivable that if the moratorium were to be lifted, a wave of new taxes of many kinds could be imposed.   Broadband bills might come to look more like cellular or landline phone bills with numerous fees and taxes included.  A recent study by the Heartland Institute makes this point and also points out that taxes on phone and cable services are already much higher than typical sales taxes imposed on other goods and services.

Government leaders across the political spectrum have said they believe that encouraging broadband deployment and adoption is a critical national priority.  Opening the door to the imposition of new taxes and fees sends exactly the wrong signal in this regard at a time when we are making real progress in connecting low income Americans and minority groups to the Internet through broadband.   The Internet Tax Moratorium should be extended permanently as Ms. Kerrigan urges.