Updated Revenue Threat: Preserve Texas’ Ability to Tax Internet Access

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Dick Lavine /(512) 320-0222 x 101

August 13, 2007

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Federal law allows certain states, including Texas, to tax Internet access charges. Texas currently collects $55 million a year by applying the state sales tax to all but the first $25 of a monthly Internet access charge. However, the federal provision will expire on November 1, 2007, and might not be extended, reducing the ability of Texas state government to fund critical public services. In addition, Texas’ new “margins tax” might not apply to revenue received by companies such as AT&T or Time Warner for providing Internet access. Access providers can be taxed only by specific types of general business taxes, which might not include the “margins tax,” which is a new form of taxation.