Net neutrality is the principle that Internet service providers and governments should treat all data on the Internet equally, not discriminating or charging differentially by user, content, site, platform, application, type of attached equipment, or mode of communication. There has been extensive debate about whether "Net neutrality" should be required by law. Proponents of "Net neutrality" say is it needed to promote fair competition and service, claiming telecom companies intentionally slow the traffic of certain applications and content providers, creating artificial scarcity and forcing consumers to purchase their services. Critics of such regulation claim that data discrimination is necessary in order to guarantee the most valued services, and that "reclassifying" broadband services and providers as a public utility, like water, telephone or electricity, will result in Billions of dollars in additional state and local taxes.
Will Net Neutrality Cost American Consumers More in Taxes?
In February, the Federal Communications Commission is expected to announce whether it will change the way it regulates the Internet by “reclassifying” broadband providers as a “common carrier” under Title II of the Telecommunications Act.
In a December 2014 study of the tax and financial implications of “reclassification” on the American consumer, economists at the Progressive Policy Institute added to the argument against “Net neutrality” the position that it would add nearly $15Billion in additional state and local taxes. Michelle Le Hee Yee, a reported with The Washington Post, interviewed me for an article in the online edition’s “Fact Checker” section, which was published on January 16, 2015. Readers can check out this article here
While it is difficult to agree with the findings of the economists at the Progressive Policy Institute that “reclassification” will result in $15Billion in in additional state and local taxes, one thing is certain – change creates uncertainty. While the Internet Tax Freedom Act (ITFA) currently prohibits new state and local taxes on Internet access fees, and has been extended until October 1, 2015, there is plenty of uncertainty in the language of the ITFA. The ITFA does not clearly define the breadth of this exemption. As we all know, uncertainty breeds audit controversy and litigation. Uncertainty creates an opportunity for state and local taxing authorities to “exploit the grey areas” through these measures. Will “reclassification” open the floodgates to taxation of Internet access and ancillary charges that to date have been exempt under the ITFA? Likely not. However, we can expect increased audit scrutiny of Internet Service Providers, and other application, content and telematics companies that utilize and/or provide access to the Internet to customers.