On May 10, 2017, the Washington State Department of Revenue issued Excise Tax Advisory (ETA) 3047.2017, which provides guidance addressing Washington State’s tax treatment of Internet access and telecommunications used to provide Internet access under the federal Internet Tax Freedom Act (ITFA). In effect, Internet access and telecommunications used to provide Internet access are exempt from Washington’s retail sales tax.
BACKGROUND
The ITFA prohibits federal, state, and local governments from imposing discriminatory taxes on revenues derived from providing Internet access services. Originally enacted in 1998 under President Clinton as a moratorium, the ITFA was subsequently extended several times with minor modifications before becoming a permanent law in 2016 under President Obama—Pub. L. No. 114–125, 130 Stat.122 (2015), Trade Facilitation and Trade Enforcement Act of 2015.
ETA 3047.2017 provides that under both the Revised Code of Washington (RCW) 82.04.297 and the ITFA, Internet access is “a service that enables users to connect to the Internet in order to access content, information, electronic mail, or other services offered over the Internet.”
ETA 3047.2017 also provides that the ITFA defines Internet access to include, among other services and activities, telecommunications so long as the telecommunications are purchased, used, or sold to:
- Provide an Internet access service
- Otherwise enable users to access content, information, or other services offered over the Internet
Telecommunications used to provide Internet access include:
- Transmission capacity over a dial-up connection
- Coaxial cable
- Fiber optic cable
- T1 line
- Frame relay service
- Digital subscriber line (DSL)
- Wireless technology
Telecommunications used to provide Internet access can also include other means, but only to the extent that these services are purchased, used, or sold to provide Internet access.
IMPLICATIONS
In general, Washington law doesn’t provide a retail sales tax exemption for telecommunications used to provide Internet access per RCW 82.04.297. However, the ITFA prohibits the imposition of retail sales tax on Internet access and telecommunications used to provide Internet access. Under RCW 82.08.0254, Washington must likewise exempt any sale that is prohibited from taxation under the laws of the United States. Internet access and telecommunications used to provide Internet access are therefore exempt from Washington’s retail sales tax.
The ITFA doesn’t prohibit the imposition of Washington’s business and occupation (B&O) tax on either the sale of Internet access or the sale of telecommunications used to provide Internet access. Because of this, under RCW 82.04.290(2) and 82.04.297, Washington imposes service and other activities B&O tax on the sale of Internet access. Retailing B&O tax is imposed on the sale of telecommunications used to provide Internet access under RCW 82.04.050, 82.04.190, and 82.04.250.
WE’RE HERE TO HELP
For more information or assistance, contact your Moss Adams professional or email statetax@mossadams.com.