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FCC Proposes Internet Tax

April 26, 2010

By Oregon Tax News,

On tax day before the Senate Commerce Committee, the Federal Communications Commission (FCC) proposed the National Broadband Plan that would expand the Universal Service Fund (USF) tax on landline and cell phones to include broadband internet.  The FCC estimates the National Broadband Plan will cost $350 billion to develop, but that the plan will pay for itself.  The goal is to tax all types of telecom service, including Internet service, and use this pool of money to subsidize the cost of broadband.

FCC Chairman Julius Genachowski testified, “It proposes a once-in-a-generation transformation of the Universal Service Fund from yesterday’s technology to tomorrow’s.”

Under the current USF tax rate the Internet tax will be at least 15.3% of your bill. The plan sets a goal of capping the tax at this year’s level to promote fiscal responsibility.  However, critics are skeptical because President Obama has increased the USF tax rate by 61% since he took office.

First, the plan expressly calls for a digital goods tax.  Since state and local governments pursue varying approaches to raising tax revenues, a national framework for digital goods and services taxation would reduce uncertainty and remove one barrier to online entrepreneurship and investment.  In fact, 18 states have already enacted laws to tax digital goods and services.  Such taxes range from downloading music, books, and ringtones within state borders.  The National Broadband Plan would create a national framework and could spread these state laws nationwide, permitting all states to begin taxing digital goods and even allowing states to collect taxes on e-commerce made across their borders.  Critics argue that taxes on e-commerce would be deemed unconstitutional by the U.S. Supreme Court because it violates the Commerce Clause of the U.S. Constitution (Quill v. North Dakota).

Secondly, the National Broadband Plan calls for significant expansion of the Universal Service Fund (USF), a tax on urban and suburban consumers redistributed predominantly to rural areas.  The FCC seeks to reform current universal service mechanisms to support deployment of broadband and voice.

Third, the plan calls for Congress to consider providing optional public funding.  Some critics are afraid that this proposal is a mere continuation of the Obama spending spree.  However, supporters are confident that this proposal is a way to increase revenue to support access across the country to fast growing and new technology.

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GWG April 26, 2010

First, the “tax” the FCC proposes is a fee charged on transmission capacity, including telephone and previously broadband service, for universal service (USF). This fee was imposed on broadband services prior to a series of decisions by the FCC beginning in 2002 to relieve these providers of their obligation to contribute to the universal service fund. Prior to eliminating broadband from the USF, the fee was under 10%, and again it was paid based on revenues earned from broadband. It is at 15.3% today, as you note. However, with the inclusion of broadband and intrastate revenues, the fee would decline to approximately 3%.

Now, the real debate is whether the rest of the Nation should think this is a small price to pay to ensure that people in places like Astoria, Banks, Tilamook Oregon should have access to broadband or if we should leave them behind. I would note that Oregon receives $89 million annually from the USF to expand access. That money comes from other parts of the country in a shared assessment that recognizes we are all Americans and we can all help one another.

Things asre rarely as simple as a bumper sticker slogan.

FCC Proposes Internet Tax « Internet Freedom Coalition April 27, 2010

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