Congress considers tax on all net and data connections

That Internet and mobile phone connection you use every day could be taxed as much as three percent if the Joint Committee on Taxation has its way
Publish date:

An influential congressional committee has dropped a political bombshell by suggesting that a tax originally created to pay for the Spanish American War could be extended to all Internet and data connections this year, CNET reported.

The committee, deeply involved in writing U.S. tax laws, unexpectedly said in a report last week that the three percent telecommunications tax could be revised to cover “all data communications services to end users,” including broadband, dial-up, fiber, cable modems, cellular and DSL links.

Currently, the three percent excise tax applies only to traditional telephone service. But because of technological convergence and the dropping popularity of landlines, the Joint Committee on Taxation concluded in its review of tax law reforms that it might make sense to extend the 100-year old levy to new technologies. The committee did not take a position on whether Congress should approve such an extension and simply listed it as an “option” for consideration.

The congressional report comes not long after the Internal Revenue Service and Treasury Department said they were considering how the Spanish American War tax should be reinterpreted “to reflect changes in technology” used in “telephonic or telephonic quality communications,” CNET reported.

Tech companies, including Microsoft, Intel and Skype, slammed that idea in a September letter, asking the IRS to “refrain from any attempt to extend the excise tax to VoIP services.”

The discussion in the tax committee’s report, however, ventures far beyond VoIP. “Extending the tax to all communications requires taxing Internet access, bandwidth capacity, and the transmission of cable and satellite television,” it said.

Technology trade associations were instantly critical. Jonathan Zuck, president of the Association for Competitive Technology, said the industry has to be careful in trying to stretch a taxation system this old to be a catchall for all modern technology.

Congress enacted the so-called “luxury” excise tax at one cent a phone call to pay for the Spanish American War back in 1898, when only a few thousand phone lines existed in the country. It was repealed in 1902, but was reimposed at one cent a call in 1914 to pay for World War I and eventually became permanent at a rate of three percent in 1990.

The report, titled “Options to Improve Tax Compliance and Reform Tax Expenditures,” is a broad review of tax law and proposes a number of ways to boost the federal government’s bottom line by up to about $400 billion over the next decade.

Back to the top