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Internet Tax Freedom Act of 1998, Title XI of the Omnibus Appropriations Act of 1998, Pub. L. No. 105-277 (Oct. 21, 1998).


The Act placed a three-year moratorium on any new taxes on Internet access fees and prohibited multiple and discriminatory taxes on electronic commerce.[1]

[T]he bar on taxes includes whatever an Internet access provider reasonably bundles to consumers, including e-mail and digital subscriber line (DSL) services. The moratorium does not bar taxes on acquired services, such as high-speed communications capacity over fiber, acquired by Internet service providers (ISP) and used to deliver Internet access.[2]

The Act also established the Advisory Commission on Electronic Commerce.


Originally designed to postpone the addition of any new taxes while the Advisory Commission on Electronic Commerce studied the tax issue and reported to Congress, the moratorium was extended in 2001 for two years[3] and again in 2004, retroactively, to remain in force until November 1, 2007.[4]


The 2001 extension made no other changes to the original act, but the 2004 Act included clarifying amendments. The 2004 Act amended language that had exempted telecommunications services from the moratorium.[5] Recognizing state and local concerns about their ability to tax voice services provided over the Internet, it also contained language allowing taxation of telephone service using Voice over Internet Protocol (VoIP).[6]

Although the 2004 amendments extended grandfathered protection generally to November 2007, grandfathering extended only to November 2005 for taxes subject to the new moratorium but not to the original moratorium.


  1. A tax is a "multiple tax" if credit is not given for comparable taxes paid to other states on the same transaction; a tax is a "discriminatory tax" if e-commerce transactions are taxed at a higher rate than comparable nonelectronic transactions would be taxed, or are required to be collected by different parties or under other terms that are more disadvantageous than those that are applied in taxing other types of comparable transactions. Generally, states and localities that tax e-commerce impose comparable taxes on nonelectronic transactions. States that have sought at one time to require that access providers collect taxes due — a process that might have been thought to have been discriminatory — have backed away from that position. Moreover, although interstate commerce may bear its fair share of state taxes, the interstate commerce clause of the Constitution requires there to be a substantial nexus, fair apportionment, nondiscrimination, and a relationship between a tax and state-provided services that largely constrains the states in imposing such taxes. Quill Corp. v. North Dakota, 504 U.S. 298, 313 (1992) (full-text).
  2. Internet Access Tax Moratorium: Revenue Impacts Will Vary by State.
  3. Internet Tax Nondiscrimination Act, 2001, Pub. L. No. 107-75, §2, 115 Stat. 703.
  4. Internet Tax Nondiscrimination Act, 2004, Pub. L. No. 108-435, §§ 2 to 6A, 118 Stat. 2615 to 2618.
  5. The term Internet access service "does not include telecommunications services, except to the extent such services are purchased, used, or sold by a provider of Internet access to provide Internet access." This change is due to confusion over whether DSL services were covered by the original moratorium language. Some states taxed DSL on the basis that it consists of both Internet access services and telecommunications services. DSL providers argued that such treatment put them at competitive disadvantage with cable modem and direct satellite providers.
  6. "Nothing in this Act shall be construed to affect the imposition of tax on a charge for voice or similar service utilizing Internet Protocol or any successor protocol. This section shall not apply to any services that are incidental to Internet access, such as voice-capable e-mail or instant messaging."

See also[]

External resources[]

  • GAO, Broadband Deployment is Extensive throughout the United States, but It Is Difficult to Assess the Extent of Deployment Gaps in Rural Areas (May 2006) (full-text).