New Federal Law Puts Expiration Date on Texas’ Ability to Tax Internet Access

President Obama recently signed the Trade Facilitation and Trade Enforcement Act (“TFTEA”) into law, which makes permanent the provisions of 1998’s Internet Tax Freedom Act (“ITFA”). [1] The TFTEA permanently bans state and local jurisdictions from imposing taxes on Internet access, among other prohibitions. Under the TFTEA, Texas’ right to tax Internet access ends on June 30, 2020 due to the statute’s phasing out of a “grandfather” clause that allowed certain states (like Texas) to continue taxing Internet access under ITFA.

The Comptroller’s office estimates that this change will result in a $358 million revenue loss for the state.[2] Such a hit could prompt the Comptroller to become more aggressive with its taxability policies for and audits of other services and industries.

[1] Trade Facilitation and Trade Enforcement Act, H.R. 644, 114th Cong. (2016).

[2] Congresswoman Jackson Lee (TX), Permanent Internet Tax Freedom Act, 161 Cong. Rec. H3955 (Introducing Statement by Nancy L. Prosser, Special Counsel to the Deputy Comptroller, Texas Comptroller of Public Accounts) (June 8, 2015).