The New Hampshire Senate's Finance Committee unanimously voted Thursday to outlaw taxing Internet access in hopes of clearing up confusion over how a tax is being applied 22 years after it was created.
State law currently does not define Internet access and was written before the Internet was widely used. It also was written before the invention of 3G and 4G wireless networks, which allow access to the Internet over smartphones.
Senate Finance Chairman Chuck Morse told his committee Thursday that some companies are charging the 7 percent Communications Services Tax on access and data plans, while others are not. He said state revenue officials are telling companies that they must pay the tax if their offerings to consumers are bundled, and he wants to put a stop to it.
"This [proposal] is very simple: New Hampshire is not going to tax the Internet," Morse said.
Morse estimated that if the bill is not passed, New Hampshire consumers would pay an additional $6 million in taxes next year.
The committee voted 7-0 to recommend that the full Senate pass a bill to prohibit taxing the charges consumers pay to gain access to the Internet through broadband and wireless connections.
The tax would continue to be charged on two-way phone use, other voice communications and text messaging.
The state Department of Revenue told the committee Morse's amendment would not accomplish his goal, but Morse urged the committee to move ahead anyway. Companies self-report the tax, and Morse said any issues that arise from state audits over their failure to comply with his proposed law could be ironed out later.
Revenue Commissioner Kevin Clougherty insisted in a letter to the committee Thursday that New Hampshire has not, and does not, tax the Internet. He said it is up to the telecommunications companies to separate taxable two-way voice and text communications from bundled charges that include access and data fees to avoid being taxed on the total charge.
"Retailers are allowed to disaggregate their charges to identify the two-way communication portion of their charges, thus eliminating any possible taxation of Internet access," Clougherty wrote.
Witnesses representing Verizon, Comcast and the New England Cable and Telecommunications Association testified in support of the legislation.
"It provides long-needed clarity and certainty as to whether the Communications Services Tax applies to Internet access service," said Lisa Thorne, director of public policy for Verizon for New Hampshire, Maine and Vermont. "This certainty will resolve a fractured situation where some Internet access providers have been collecting the tax from customers and others, including Verizon Wireless, have not, and place all providers – and, more importantly, all New Hampshire customers – under the same, clear set of rules."