Tax News

CCH (cch.taxgroup.com) reports:

The Judiciary Committee of the U.S. House of Representatives has approved legislation that would extend for four years the existing moratorium on state and local Internet access taxes currently set to expire on November 1, 2007. The legislation, the Internet Tax Freedom Act Amendments Act of 2007, was offered by the Committee's chair Rep. John Conyers, Jr., D-Mich, and has the support of various industry groups and state government organizations. It has been reported by the Committee to the full House for a floor vote that may occur next week.
Specifically, the legislation would do the following:
-- The moratorium on state and local taxes on Internet access and multiple or discriminatory taxes on electronic commerce that was originally enacted in October 1998 would be extended until November 1, 2011. Also, the grandfather clause that permits Internet access taxes that were generally imposed and actually enforced prior to October 1, 1998, would be extended until November 1, 2011, as well.
-- A state or local government would be held harmless until November 1, 2007, if it has imposed a tax on telecommunications service purchased, used, or sold by a provider of Internet access. However, the hold harmless would only operate if a public ruling applying such a tax was issued prior to July 1, 2007, or such a tax is the subject of litigation that was begun prior to July 1, 2007. In its last set of amendments to the moratorium, Congress had attempted to prohibit, as of November 1, 2005, certain taxes on telecommunications services, including digital subscriber line (DSL) service and services used by access providers over the so-called Internet backbone. However, some states, including Minnesota and Missouri, have taken the position that the 2004 amendments did not have the purported effect. The Committee legislation attempts to clarify the intent of Congress and eliminate any inconsistent interpretations.
-- A new definition of "Internet access" would be enacted. The stated purpose is to define it as a service that enables a user to connect to the Internet. "Internet access" would include the purchase, use, or sale of telecommunications by an Internet service provider to provide the service, and incidental services such as home pages, electronic mail, instant messaging, video clips, and personal storage capacity. However, "Internet access" would not include voice, audio, video programming, or other products and services using Internet protocol for which there is a charge, regardless of whether the charge is bundled with charges for "Internet access."
-- The moratorium would be amended to clarify that it does not apply to state general business taxes, such as gross receipts taxes, that are structured in such a way as to be a substitute for or supplement the state corporate income tax. Therefore, Internet access providers could still be taxed on their receipts attributable to providing access under tax regimes such as the Michigan business tax, Ohio commercial activity tax, Texas margin tax, and Washington business and occupation tax.
Subscribers to CCH Tax Research NetWork can view the legislation passed by the House Judiciary Committee.
H.R. 3678, as amended and approved by the U.S. House Judiciary Committee, October 10, 2007; Press Release, Office of Rep. John Conyers, Jr., October 10, 2007.