Internet tax moratorium: why?

Our recent discussion of the proposed moratorium on taxing Internet service leaves us with a fundamental question: What’s so special about Internet services?

Are services transported over the Internet fundamentally different from those sent on private networks? Should your private network – such as a frame relay service – be taxable, while you can avoid tax by using an Internet-based VPN? How do you apply all this to corporate services vs. consumer services, especially in this day of teleworkers?

Internet services were exempted 10 or so years ago because the government was trying to provide incentives for people to use this newfangled digital communications infrastructure. But if you look at the churn among ISP customers, the constant price erosion, and the pervasive use of the Internet today, it hardly seems that we need any more incentive to get people to use the services.

In fact, today the exact opposite of tax relief might be in order. After all, one of the major taxes on current telephony services is the “Universal Service Fund,” a special tax levied to help ensure that all consumers can afford basic phone service. As we look forward to the next few years, isn’t Internet access just as much of a fundamental right (or lack of the same) as phone service?

We’re not arguing for more taxes, and we’re not arguing for fewer taxes. Rather, we’re just pointing out that a brand-new bill under consideration makes absolutely no sense in light of current technology. We must have public policy – and public policy makers – that reflects reality rather than fantasy.

Next time: The possible business impact of the proposed bill, H.R. 49.