4. Address broader telecommunications tax issues.

America's increasingly competitive communications sector also remains one of its most heavily taxed. As Progress and Freedom Foundation President Jeffrey A. Eisenach asks,

. . . in a world in which building out the telecommunications infrastructure is policy goal Number One—why would we place discriminatory taxes on telecommunications? And we're not talking about small taxes, either. We're talking about levels of taxation between 20 and 40 percent, depending on the state and the locality . . . . We're talking about a level of complexity that is just stunning. There are 38 different kinds of taxes paid by telecommunications companies just in the telephone business . . . . The tax structure that we have is not only too high, it's also regressive. Virtually all of the taxes that we levy on telecommunications providers are excise taxes or line taxes, line charges, equivalent of poll taxes. And so they go directly against our objective of making Internet access and the information revolution available to people regardless of their income.31

Among the taxes that most deserve the attention of Congress and members of the ACEC are the following:

  • The federal three-percent excise tax on telecommunications. Put in place during the time of the Spanish-American War of 1898, this tax is an anachronism and should be repealed immediately.

  • Discriminatory ad valorem taxation of interstate telecommunications. Fifteen states tax telecommunications business property at rates higher than other property, driving up costs for consumers. Federal protections against such taxes—already in effect for railroads, airlines, and trucking—should be extended to telecommunications.32

  • Internet tolls. These new taxes and fees levied on telecommunications providers and their customers when cable is installed along highways and roads can run up to five percent of gross receipts. They drive up costs for consumers and should be abolished. Congress should make clear that the 1996 Telecommunications Act intended only that state and local governments be reimbursed for actual costs incurred in managing public right of ways.

  • High state and local telecommunications taxes and complicated auditing and filing procedures. Many governments are using consumer telephone bills as cash cows, imposing multiple high taxes on services. Such taxes should be cut to a single tax per state and locality, and filing and auditing procedures should be streamlined.

  • Internet access taxes. The temporary federal ban on Internet access taxes should be made permanent. States and localities that imposed such taxes before the ban took effect should repeal any taxes on access to keep costs down for consumers.

Even if the ACEC and Congress do not reach agreement on the issue of Internet sales taxation in the short term, they should, at a minimum, undertake immediate action to eliminate or reform these costly telecom industry tax burdens.