Republican-led initiative would ban tax on Internet access
CONCORD – Telecommunication company executives and business leaders praised a Republican legislative leadership initiative to ban taxing Internet access.
Senate Finance Committee Chairman Chuck Morse, R-Salem, said some major Internet providers are already charging their customers the 7 percent Communications Services Tax on data plans.
Even with this change, the tax will continue to be charged on two-way voice communication such as phones and online chats and on text messaging.
The industry claims the state Department of Revenue Administration auditing opinion that this Internet Access service is taxable violates a federal ban on taxing the Internet that’s been in place since 1998. Morse said the companies maintain it amounts to an annual $8 million hit to their customers. DRA auditors counter the value of these services are worth $6 million to state coffers.
“Quite honestly the amendment is very simple. The state is making a statement that New Hampshire is not taxing the Internet. That’s it,” Morse said.
Executives with Verizon, Comcast and the New England Cable TV and Telecommunications Association all endorsed the change along with the New Hampshire Business & Industry Association.
Jeff McLynch with the New Hampshire Fiscal Policy Institute warned that it could cost the state as much as $12 million annually and could lead to deeper budget cuts.
McLynch said New Hampshire is one of nine states currently imposing some state tax on Internet access.
“What’s more, should the Legislature decide to pursue further tax cuts this session, other potentially, cheaper or more targeted options for reducing taxes for working New Hampshire families are readily available,” McLynch said.
The Senate Finance Committee unanimously approved the tax on Internet access ban and it could come to the full Senate as early as next week.
But this solution that also has the conceptual support of Gov. John Lynch is likely to be caught in a House-Senate battle over whether to divert $18 million of insurance tax revenue to bulk up the state’s Rainy Day Fund.
House Speaker William O’Brien, R-Mont Vernon, has made this Rainy Day Fund bill, HB 1692, an important priority and says it keeps a promise to voters since the state finished the last state budget with an $18 million surplus.
Morse said the two-year spending plan the state is under already presumes it will be $14 million in deficit when the first year concludes June 30.
“Nobody wants a healthy Rainy Day Fund more than I do, but we can’t afford to do this and at best it’s premature,” Morse said.
The ban on taxing Internet access strips O’Brien’s Rainy Day Fund language from the bill; it does keep in place a House-passed $1.5 million budget boost in services for adults with developmental disabilities on a waiting list for services.
Lisa Thorne, Verizon’s director of public policy, said telecommunication companies have been confused about the status of Internet access used for their customers to go online at home or with their 4G or 3G smart phones.
“This will provide long-needed clarity and certainty as to whether the Communications Services Tax applies to Internet service,” Thorne said, calling the current dispute a “fractured situation.”
“This places all New Hampshire customers and all providers as operating on the same set of rules,” Thorne said.
Revenue Commissioner Kevin Clougherty in written testimony warned Senate budget writers the proposed change could have a constitutional flaw.
That’s because it would nullify these data plan taxing assessments on companies that are perfectly defensible unless the law is changed, Clougherty said.
“If adopted, this law would effectively exonerate some customers from paying the tax that other customers have properly paid,” the DRA chief said.
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