Country / Language

President Signs Permanent Moratorium on Internet Access Taxes


3/8/16

Synopsis
 
On February 24, 2016, President Obama signed into law the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA). The new law was enacted by the House on December 11, 2015 and was approved by the Senate on February 11, 2016. This new law makes permanent the moratorium on state and local taxation of internet access.
 
Issue
 
Background:

The Internet Tax Freedom Act (ITFA) was first enacted in 1998 as a three-year temporary measure to preclude: (1) state and local taxation of internet access and (2) other discriminatory taxes on internet commerce. The ITFA included a grandfather clause allowing states that were already imposing taxes on internet access time to transition to other sources of revenue. The original three-year sunset provision of the ITFA had been extended several times, the latest of which was set to expire on October 1, 2016.
 
New Law:

The Trade Facilitation and Trade Enforcement Act makes permanent the ban on state and local taxation of internet access and the imposition of other discriminatory taxes on internet commerce. The Act also delays the phase-out of the grandfather provision to June 30, 2020, so that the seven sates – Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas and Wisconsin – that still impose tax on internet access have additional time to transition to other sources of revenue.
 
What Does CohnReznick Think? 
Arguments for the sales tax moratorium are that exempting internet access charges from sales-type taxes makes internet access affordable for lower income internet users and that the cost of compliance to internet providers of collecting and remitting the tax would be substantial. Regardless of the rationale for the moratorium, the permanent ban on internet access related taxes brings finality to this issue.
 
Contact
 
For more information, please contact Patrick Duffany, Partner and State and Local Tax Services Practice Leader, at patrick.duffany@cohnreznick.com or 959-200-7270.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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