The Tax War Against the Internet
While so-called consumer advocates continue to wail that broadband is not being adopted fast enough (despite all evidence to the contrary), pro-tax forces across the country see broadband as the golden goose of tax revenue. Their counterproductive tax strategy raises the price, driving some away from adopting broadband. The greatest growth areas of broadband access are being taxed at absurdly high rates, multiples of state sales taxes, with some states taxing mobile devices at 23 to 24 percent, and taxing cable at rates close to that.
One might think that taxing communications at multiples of gambling winnings, pornography, guns and liquor would satisfy the tax hunger, but the revenue gluttony seems to have no end. The latest assault in this tax war against the Internet? More taxes on digital downloads.
Pro-taxers, such as the Federation of Tax Administrators, are standing in the way of efforts to restrict states from engaging in multiple or discriminatory taxes on digital goods and services. They claim that the Internet Tax Freedom Act of 1998 is enough to ban such actions, even as they, the state tax administrators, continuously seek ways around the federal law, often by rewriting definitions of what can be taxed. The result? Multiple states taxing the same transaction, and discriminatory taxes on downloaded goods and services that are sometimes taxed at a higher rate than the physical copy (such as a downloaded movie being taxed more than a movie bought on a DVD).
The oft heard justification for their actions is merely that the state needs more revenue, and instead of doing the hard work of rethinking their tax systems to reflect a digital age, they cling to old thinking and game playing in an attempt to part citizens from their money, seeing tax revenue as the tax administrator’s right rather than the hard-earned income of the taxpayer.
The combined weight of ever-increasing state and local taxes already prices broadband access out of reach for some, and the drive to tax services and goods bought online at ever higher tax rates simply further inflates the cost. In their greed, tax administrators and other pro-tax forces will only succeed in reducing tax receipts as even more people decline to adopt broadband.