Municipalities Can’t Tax Internet Providers, Except When They Can

Mention the word “landline” to modern consumers, and you’ll likely get the same quizzical look as if you’d said “rotary phone.” As consumers shift almost uniformly to mobile phones and larger organizations rely on cable connections instead of DSL for their office “landlines,” the local income associated with telecom franchise fees has nosedived. Adding to the complexity of the revenue issue is the Internet Tax Freedom Act (ITFA) of 1998, which prohibits taxing internet usage – so, even though telecommunications companies are utilizing locally-owned phone lines to provide broadband internet access to residents, localities can no longer tax the services being provided like they used to.

However, creative minds have been working to find ways that accommodate the various federal statutes while still increasing revenue for local governments. In recent months, cities have started to pass legislation allowing localities to tax internet providers directly for using city right–of-ways (ROWs). It’s a highly technical loophole, but with broadband being at the forefront of the next major tax revolution, its one that your municipality may want to consider – and soon.

Read the full story by Avenu’s Jonathan Gerth at Efficient Gov.

Jonathan Gerth, Esq., is vice president of compliance auditing for Avenu Insights & Analytics. Contact him at Jonathan.Gerth@avenuinsights.com.

Avenu’s Jonathan Gerth Shows Alabama how to Get the Most out of Its Sales Tax

Avenu’s Vice President of Tax and Auditing Services, Jonathan Gerth, is bringing his expertise to Opelika, AL on Aug. 15 for a one-day business workshop in partnership with the Opelika Chamber of Commerce. Titled “Everything You Want to Know About the Collection of Sales Tax in the City of Opelika,” the one hour seminar is designed to educate local chamber members and potential chamber members on topics such as municipal business licenses requirements, how municipalities apply rental taxes, and the Supreme Court’s ruling regarding sales & use tax. Interested parties are encouraged to register online. Registration is $10 for Chamber members and $15 for prospective members. Lunch will be provided.

The U.S. Supreme Court and Online Sales Tax: What the Wayfair Decision Means as of Today

On June 21, 2018, the U.S. Supreme Court ruled that internet retailers can be required to collect online sales tax, even in states where they have no physical presence. The landmark decision, South Dakota vs. Wayfair, Inc., reverses a 1992 ruling and can result in a greater revenue source for state and local governments. As explained in this free Avenu webinar held right after the ruling, there are still uncertainties that need to be worked out. Below are highlights from the presentation that inform local government leadership about online sales tax, its revenue potential and what must or may happen before those funds are realized.

It’s been estimated that state and local governments lose nearly $13 billion per year.

Consumers are increasingly choosing the convenience and savings of online shopping. However, if those purchases were made at brick and mortar stores, the sales tax revenue that governments would collect amounts to as much as $13 billion according to the federal General Accountability Office. Having an online sales tax will allow states, cities and counties to collect this money. All governments struggle with pension, operational and other costs, and raising taxes is not an easy option. This makes online sales tax a sound choice under the right circumstances; retroactive tax collection is not permitted.

The ruling includes protections for small online businesses.

The court specified that its ruling was applicable to businesses with more than $100,000 in sales or more than 200 unique transactions per year. This may provide some relief to small, independent online retailers that will have a more difficult time adjusting to a new tax code.

Congressional Action/Implementation Moratorium.

Some stakeholders are advocating for Congress to create a six-month moratorium on sales tax collection to help businesses comply with different state statutes. Therefore, a like outcome is that some states will need to modify their current legislation to comply with the decision. If states enact laws perceived as limiting interstate commerce, then there is a strong chance that Congress will draft a federal standard. There is no timeline for this to happen.

Implementation and Timing.

Several states are issuing guidelines and implementing these new rules, so this will take time. It is still possible that there will be appeals in the lower courts for specific areas of compliance. Localities need to stay vigilant and proactive to ensure they are receiving the revenue they are entitled to.

To hear more about Avenu’s take on the case and how it might affect your area, download and watch the webinar for free here or view it on YouTube.

 

Analysis: Federal Tax Law Creates Burdens for Local Government

As the dust settles after the signing of the Federal Tax Cuts and Jobs Act of 2017, its impact to local governments has become clear: there are barriers to maintaining revenue levels, along with higher costs. This new operating environment will affect service levels in cities, towns, and counties across the U.S.

Below is a quick rundown of key changes and their impact.

 

Reduced

  • SALT deduction. The $10,000 cap on the state and local tax (SALT) deduction could mean lower home values and property tax assessments, which accounts for about half of a city’s revenue
  • Mortgage interest deduction. New homeowners can deduct no more than $750,000, further eliminating the incentive for home ownership and tax payments

Eliminated

  • Advanced Refunding Bonds. No longer a tool for refinancing outstanding debt at lower interest rates, the lack of these bonds will increase the cost of borrowing for local governments
  • Qualified Tax Credit Bonds. These instruments include Qualified Zone Academy bonds, Qualified School Construction Bonds, Clean Renewable Energy Bonds and Qualified Forestry Conservation bonds.

 

In the coming weeks and months, many local government professionals will have discussions about raising revenue or reducing expenditures as a result of this statute.