Internet Tax Freedom Act Prevents New Taxes Under Title II, Free Press Says

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By Lydia Beyoud

Dec. 15 — The Internet Tax Freedom Act precludes new taxes on Internet access, regardless of whether the FCC decides to reclassify broadband Internet services as common carriers, public advocacy group Free Press said in a letter to the agency.

The Dec. 14 letter responds to a Public Policy Institute study issued Dec. 1 that reclassification under Title II of the Communications Act of 1934 would result in $17 billion additional taxes and fees for consumers, primarily at the state and local levels.

Congress passed a renewal of the ITFA, which bans states and municipalities from taxing Internet access, as part of a Dec. 13 omnibus appropriations package to fund the federal government through fiscal year 2015.

“Internet access, whether the Commission treats it as a Title II telecom service or leaves the current (and flawed) Title I classification in place, is exempt from state and local tax thanks to the ITFA,” Free Press Policy Director Matt Wood said in the letter to the Federal Communications Commission.

The group is one of many advocating for strong enforcement of net neutrality principles in the FCC's open Internet proceeding (WC Docket No. 14-28).

New User Fees 

The PPI study said reclassification of both wireline and wireless broadband service as common carriers “could add a whopping $17 billion in new user fees” per year on top of a recently approved $1.5 billion increase of the E-Rate program funding cap.

The National Cable and Telecommunications Association (NCTA), which opposes Title II broadband regulation, issued a report Dec. 2 that also raised concerns about new taxes if the FCC pursues the Title II route in its final rulemaking .

Net income, franchise and gross receipt taxes could also go up for broadband providers if the FCC reclassifies the services under Title II, the NCTA said.

Free Press sought to refute both groups' claims, saying that the FCC, by voting Dec. 11 to increase the E-Rate funding cap, as well as in other actions in recent years related to the Connect America Fund, had demonstrated that increases in federal Universal Service Fund expenditures or outlays for broadband Internet deployment don't depend on treating residential broadband services as telecom services.

As for USF contributions under Section 254(d) of the Communications Act, “the Commission could decide to forbear from any such requirement because a cost-benefit analysis might show that the additional fees on broadband would depress overall broadband adoption among poor and elderly communities—which would go against the USF's very mission” of making Internet service more affordable to low-income and rural communities.

Adding broadband into the USF contribution base “would not impact the fund's overall size because that overall size is dictated by the expenditures mentioned above,” regardless of whether the FCC decided to forbear. “If broadband revenues were assessed but the fund size stayed constant, consumers would pay on broadband but consequently pay less for other services like wireless and wired voice,” the letter said.

The possibility of additional taxes that could be levied under Title II reclassification became a popular talking point in policy debates following the release of the PPI study.

FCC Chairman Tom Wheeler indicated Nov. 10 after a call by President Barack Obama for the strongest possible net neutrality rules that the agency would consider any impact that Title II regulations could have on universal service and other matters, but hasn't expressly addressed what possible tax consequences such rules could have, if any.

To contact the reporter on this story: Lydia Beyoud in Washington at

To contact the editor responsible for this story: Heather Rothman at

Text of the Free Press filing is at