07 Nov Wisconsin Internet access tax grandfathered into federal bill
Madison, Wis. – A bill that extends the federal moratorium on Internet taxes will not impede Wisconsin’s ability to tax access to the Internet because the bill, which is expected to be signed into law by President Bush, grandfathers Internet access taxes previously enacted in Wisconsin and several other states.
The U.S. House of Representatives recently accepted changes made to the bill by the Senate that would ban all state and local Internet taxes for another seven years. However, since Wisconsin’s Internet access tax was enacted on Aug. 8, 1991, the state will be allowed to continue collecting its tax. Over the course of the 2007-09 biennium, that would amount to an estimated $103 million statewide, according to the Wisconsin Department of Revenue.
The DOR said sales of Internet access services will continue to be subject to Wisconsin sales or use tax if the service originates or terminates in Wisconsin, and is charged to a service address in Wisconsin. For example, the taxes will continue to apply to the monthly fees paid by customers to access the Internet, including a monthly fee paid for high-speed digital subscriber lines.
“The federal legislation grandfathers many states, and Wisconsin is one of them,” said Meredith Helgerson, a communications officer for the DOR.
The new legislation is designed ot extend the Internet Tax Freedom Act, first enacted in 1998, which temporarily prevented states and local units of government from imposing taxes on Internet service. The law was renewed in 2001 and 2004, and the most recent renewal expired on Nov. 1.
After bickering over how long the moratorium should last – Democrats generally opposed a permanent moratorium; Republicans generally favored it – the new bill represents a compromise that extends the ban until 2014.
By expressly grandfathering Wisconsin and other states into the new bill, lawmakers removed any controversy over whether the state’s law still applies here. Under the most recent extension, the Internet Nondiscrimination Act of 2004, states were supposed to suspend taxation on Internet access. However, the Wisconsin DOR continued to collect the tax, prompting State Senator Ted Kanavas, R-Brookfield, to charge Gov. Jim Doyle with defying a federal law.
Kanavas said the law was designed to protect Internet users from being taxed for “simply logging onto the Internet,” and it gave Wisconsin until Nov. 1, 2006, to suspend taxation of Internet access.
After the state refused to suspend the tax, Audra Brennan, then an executive assistant to Michael L. Morgan, former secretary of the DOR and now secretary of the state Department of Administration, said Wisconsin was one of the states grandfathered out of the Internet Nondiscrimination Act.
At the time, Kanavas disputed that, but there is little doubt that Wisconsin is grandfathered out of the most recent federal Internet tax moratorium.
“It does appear that the Wisconsin DOR now enjoys grandfather protection on the Internet access tax,” said Doug Pessefall, an attorney with Whyte Hirschboeck Dudek. “The current law, as extended, continues to grandfather states such as Wisconsin that taxed Internet access prior to October 1998.”
Critics of the tax, which is expected to raise $47 million in fiscal year 2008 and $56 million in fiscal year 2009, believe it inhibits small business and economic growth, especially in the technology industry.
iPod tax is nixed
A separate proposal to apply the state’s five percent sales tax to online purchases of digital content is not part of the final 2007-09 state budget.
The propsoal, dubbed the iPod tax by critics because many listeners stock their iPods with music they bought from Apple’s iTunes music store, was part of Doyle’s proposed budget, but did not survive the ensuing legislative give and take.
It was proposed as an attempt to level the playing field for traditional music stores, but drew opposition from Republican lawmakers and the proprietors of online music retailers.
At the moment, the sale of digital content at “Main Street” music stores, or major retailers like Best Buy, is subject to the state’s sales tax. However, the purchase of music online – whether it is downloaded to a personal computer or to an iPod – is not.
The state would have raised an estimated $6.3 million in sales tax revenue over the next biennium by applying the sales tax to downloaded digital information.
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