The Internet Tax Freedom Act (ITFA), enacted in 1998, was intended to protect the developing internet technology. ITFA, which prohibited states and localities from applying taxes on internet access or imposing discriminatory digital-only taxes, became permanent in 2016 but included a grandfather clause that allowed states with taxes existing before 1998 to keep that tax in place until June 30, 2020.
On July 1, sales taxes levied on internet access in six states—Hawaii, New Mexico, Ohio, South Dakota, Texas, and Wisconsin—will become illegal under the provisions of the Permanent Internet Tax Freedom Act (PITFA). The states would have collected nearly $1 billion in fiscal year 2021.
Today, the internet hardly requires extraordinary protection from state and local sales taxes. In fact, 80 percent of U.S. households have a subscription to the internet, and 90 percent of U.S. adults use the internet. Indeed, the application of sales taxes on access to the internet does not seem to impact this number, as the percent of households with internet access in states currently levying a sales tax is comparable to national averages (2014-2018 data): 83 percent in Hawaii, 72 percent in New Mexico, 80 percent in Ohio, 78 percent in South Dakota, 79 percent in Texas, and 80 percent in Wisconsin.