Don't Be Fooled, the Internet Is Already Taxed

Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor,  writes:

Many people think that when the Internet Tax Freedom Act (ITFA) expires on December 11, this will open the door for the first time to the taxation of the Internet. Wrong. The Internet is already taxed, and taxation can continue even if IFTA is extended...

Seven states, including Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin, had their Internet access taxes grandfathered under the IFTA. These states collected an estimated $500 million in 2012. According to the Center for Budget and Policy Priorities, taxpayers living outside the grandfathered areas could have been taxed $6.5 billion in 2012.

But Americans who have smartphones and packages for service at home that include Internet are already paying taxes. If you don't believe it, just take a look at your phone bills. With smartphones proliferating, and broadband an increasingly important component of cell phone use, you are paying tax on your wireless Internet service. Then, you are paying taxes on your packages of phone/cable/Internet. Across the economy, these taxes add up to millions of dollars a year.

As a reality check, I started with my latest T-Mobile smartphone bill. I live in Maryland, not one of the grandfathered states under IFTA. Itemized on my T-Mobile bill are amounts for state and local sales tax, state and county 911, a universal service fee, and a utility use fee. In addition, I pay a separate T-Mobile fee for the Federal Universal Service Fund and yet another Regulatory Programs fee. These added up to $6.58.

Then, I checked my bill from RCN, the telecom company that provides my phone and Internet. Taxes, surcharges, and fees added up to $15.98. They include a Federal Subscriber Line Charge, a Federal Excise Tax, Federal Universal Service Fund (see, I have to pay this three times, twice to T-Mobile and once to RCN), a Gross Receipts Tax, a State 911 charge, and a Telecommunications Access Fee, a County 911 Surcharge, and a County Telephone Surcharge. The taxes on the two bills together add up to $22.56. If I subtract the Federal Subscriber Line Charge, which is not Internet-related, it comes to $14.06.

On average, large portions of wireless bills are currently taxed by the federal government for the federal Universal Service Fund at an average rate that tops 16 percent.

Revenues from this tax are used for a variety of programs, including free phones to low-income individuals, sometimes known as "Obamaphones."