State Internet Tax Freedom Act Exposed

The State Internet Tax Freedom Act was adopted by ALEC's Tax and Fiscal Policy Task Force at the Spring Task Force Summit on May 1, 2004, approved by the full Board of Directors in May, 2004. According to ALEC.org, the Act was amended by the Tax and Fiscal Policy Task Force at the Spring Task Force Summit on May 3, 2013, approved by the Board of Directors on August 5, 2013. Any language removed from the original version is indicated with strikethrough text and additions are given in bold. (Accessed on 1/25/2016).

CMD's Bill Summary

This Act would prohibit state or local taxes on Internet access, online computer services, or use of the Internet and online services.

ALEC Bill Text

Summary

The borderless nature of the 21st century economy makes the preemption of certain taxes necessary for a growing economy and sound business environment. and healthy taxpayer. This model bill forbids a state or local tax on Internet access, Online Computer Services, or the use of Internet access or any Online Computer Services. The borderless nature also makes Federal legislation the more appropriate vehicle to accomplish the preemption. Accordingly the current Federal Internet Tax Freedom Act should continue. This model bill is needed because it forbids either a state or local tax on Internet access, or discriminatory taxes on electronic commerce, in those cases where the Federal Internet Tax Freedom Act may not apply.

Model Legislation Policy

{Title, enacting clause, etc.}

Section 1. {Short Title.}

This Act may be cited as the "{Insert State} Internet Tax Freedom Act."

Section 2. {Declarations.}

(a) As a massive global network spanning not only state but international borders, the Internet is inherently a matter of interstate and foreign commerce within the jurisdiction of the United States Congress under Section 8 of Article I of the United States Constitution.

(b) Even within the United States, the Internet does not respect state lines and operates independently of state boundaries. Addresses on the Internet are not designed to be geographically indifferent relevant. Internet transmissions are insensitive to physical distance and can have multiple geographical addresses.

(c) Taxes imposed on Internet access or Online Computer Services by state and local governments could subject consumers, businesses, and other users engaged in interstate and foreign commerce to multiple, confusing, and burdensome taxation, could restrict the growth and continued technological maturation of the Internet itself and electronic commerce, and could call into question the continued viability of this dynamic medium.

(d) Services provided by state and local governments are important and valuable to both consumers and businesses, and this bill is not intended to interfere with existing sources of revenue that provide funding for state and local government services. This act is intended to impose a moratorium on new taxes imposed on Internet access and Online Computer Services, as well as the discriminatory application of existing or new taxes, as defined herein, to Internet access or Online Computer Services and electronic commerce. Nothing in this act shall be interpreted as precluding the imposition or collection of new or existing taxes of general application that are imposed or assessed in a uniform and non-discriminatory manner without regard to whether the activities or transactions taxed are conducted throughover the use of the Internet, Internet access, or Online Computer Services. Internet.

(e) A permanent, uniform and coherent national policy concerning national and subnational taxation of the Internet access and electronic commerce, in a manner that does not unreasonably burden interstate and foreign commerce, should be developed by the Congress of the United States, acting pursuant to the powers granted to it by clause 3 of Section 8 of Article I of the United States Constitution. Until such a permanent national policy is developed, a limited restriction on state taxing authority of electronic commerce and a preemption of state and local taxing authority of the Internet and Online Computer Services is appropriate.

(f) It is the intent of this Legislature that no existing or future state taxes or state fees be imposed by the state in a discriminatory manner upon Internet access or Online Computer Services electronic commerce and no taxes be imposed on Internet access. This statement of legislative intent is meant to place the greatest possible barrier to the creation of discriminatory taxes or fees upon electronic commerce or the imposition of any taxes on Internet access upon this Legislature and all future Legislatures.

(g) For these reasons, the Legislature finds that, subject to certain exceptions designed to protect existing state or local government revenue, preemption of state or local government authority to levy taxes on Online Computer Services and access to the Internet Internet access is a matter of statewide concern.

Section 3. {Definitions.} The following definitions apply in this Act:

(1) "Internet" means the global information system that is logically linked together by a globally unique address space based on the Internet Protocol (IP), or its subsequent development and extensions; and is able to support communications using the Transmission Control Protocol/Internet Protocol (TCP/IP) suite, or its subsequent development and extension, or other IP-compatible protocols; and provides, uses, or makes accessible, either publicly or privately, high level services layered on the communications and related infrastructure described herein.

(1) The term ‘Internet’ means collectively the myriad of computer and telecommunications facilities, including equipment and operating software, which comprise the interconnected world-wide network of networks that employ the Transmission Control Protocol/Internet Protocol, or any predecessor or successor protocols to such protocol, to communicate information of all kinds by wire or radio.

(B) Internet Access –

(1) means a service that enables users to connect to the Internet to access content, information, or other services offered over the Internet (“Internet access”);

(2) includes the purchase, use or sale of transmission services by a provider of a service described in subparagraph (B)(1) to the extent such transmission services are purchased, used or sold to provide Internet access; or to otherwise enable users to access content, information, or other services offered over the Internet;

(3) includes services that are incidental to the provision of Internet access when furnished to users as part of Internet access, such as a home page, electronic mail and instant messaging (including voice- and video-capable electronic mail and instant messaging), video clips, and personal electronic storage capacity;

(4) does not include voice, audio or video programming, or other products and services (except services described in subparagraphs (1), (2), or (3) or (5) that utilize Internet protocol or any successor protocol and for which there is a charge, regardless of whether such charge is separately stated or aggregated with the charge for services described in those subparagraphs; and

(5) includes a homepage, electronic mail and instant messaging (including voice- and video-capable electronic mail and instant messaging), video clips, and personal electronic storage capacity, that are provided independently or not packaged with Internet access;

(C) “Discriminatory” means a tax that is any of the following:

(1) Imposed by a State or political subdivision thereof on electronic commerce that is not generally imposed and legally collectible by such State or such political subdivision on transactions involving similar property, goods, services, or information accomplished through other means.

(2) "Online Computer Services" means the offering or provision of information, information processing, and products or services to a user via the Internet, whether or not they are offered as part of a package of services that are combined with Internet access and offered to the user for a single price, or provided and billed separately. "Online Computer Services" does not include telephone service or telecommunications services.

(3) "Internet access" means the offering or provision of the storage, computer processing, and transmission of information that enables the user to make use of the resources found via the Internet. "Internet access" does not include telephone service or telecommunications services.

(4) "Discriminatory" means a tax levied on Online Computer Services or Internet access that is either of the following:

(A) At a rate higher than that imposed on other businesses.

(B) Applicable to the taxpayer solely by virtue of the offering of or the use of Online Computer Services or Internet access and therefore not applicable to taxpayers not engaged in the offering of or the use of Online Computer Services or Internet access.

(C) “Discriminatory” means a tax that is any of the following:

(1) Imposed by a State or political subdivision thereof on electronic commerce that is not generally imposed and legally collectible by such State or such political subdivision on transactions involving similar property, goods, services, or information accomplished through other means.

(2) is not generally imposed and legally collectible at the same rate by such State or such political subdivision on transactions involving similar property, goods, services, or information accomplished through other means, unless the rate is lower as part of a phase-out of the tax over not more than a 5-year period.

(3) imposes an obligation to collect or pay the tax on a different person or entity than in the case of transactions involving similar property, goods, services, or information accomplished through other means;

(4) establishes a classification of Internet access service providers or online service providers for purposes of establishing a higher tax rate to be imposed on such providers than the tax rate generally applied to providers of similar information services delivered through other means or;

(5) imposed if the sole ability to access a site on a remote seller’s out-of-State computer server is considered a factor in determining a remote seller’s tax collection obligation; or

(6) imposed if a provider of Internet access service or online services is deemed to be the agent of a remote seller for determining tax collection obligations solely as a result of—

(i) the display of a remote seller’s information or content on the out-of-State computer server of a provider of Internet access service or online services; or

(ii) the processing of orders through the out-of-State computer server of a provider of Internet access service or online services.

(D) "Bit tax" means any transactional tax imposed on or measured by the amount of digital information transmitted electronically, or any transactional tax imposed on or measured according to any of the technological or operating characteristics of the Internet, but does not include taxes imposed on the provision of telecommunications services.

(E) "Bandwidth tax" means any transactional tax imposed on or measured by the physical capacity of an available signal to transmit information electronically or by fiber optics.

Section 4. {Prohibition.}

(a) Except as provided in subdivision (b), neither the state, nor any city, county, or city and county may impose, assess, or attempt to collect any of the following:

(1) A tax on Internet access, Online Computer Services, or the use of Internet access or any Online Computer Services. or the use of Internet access.

(2) A bit tax or bandwidth tax.

(3) Any discriminatory tax on Online Computer Services or Internet access. electronic commerce.

(b) The prohibition in subdivision (a) against the imposition of taxes shall not apply to any new or existing tax of general application, including but not limited to any sales and use tax, business license tax, or utility user tax that is imposed or assessed in a uniform and non-discriminatory manner without regard to whether the activities or transactions taxed are conducted through the use of the Internet, Internet access, or Online Computer Services. on transactions involving similar property, goods, services, or information accomplished through other means.

Adopted by the Tax and Fiscal Policy Task Force at the Spring Task Force Summit, May 1, 2004.

Approved by the full ALEC Board of Directors May, 2004.