New leg­is­la­tion would tax dig­i­tal ser­vice

Leg­is­la­tors mull new fee for Net­flix, Hulu, among other ser­vices.

The Atlanta Journal-Constitution - - FRONT PAGE - By Mark Niesse [email protected]

Pos­si­bly com­ing soon to a screen near you: a tax on Net­flix and just about ev­ery­thing else you down­load or stream.

Ge­or­gia law­mak­ers, coaxed by dozens of lob­by­ists swarm­ing the state Capi­tol, are push­ing for a tax on dig­i­tal video, books, mu­sic and video games.

That means you’d pay more for Net­flix, Ama­zon Prime Video, Hulu, Kin­dle e-books, iTunes mu­sic, Spo­tify and in­ter­net phone ser­vices.

Leg­is­la­tors and in­ter­net providers see it as a gi­ant pool of un­tapped cash that could be used to sub­si­dize con­struc­tion of in­ter­net lines in eco­nom­i­cally de­pressed ru­ral parts of the state.

Those who are al­ready con­nected would pay the price: They’d bear the cost of the 4 per­cent tax, but its ben­e­fits would go to­ward ru­ral res­i­dents who lack high-speed ac­cess to on­line prod­ucts.

Ge­or­gia is the lat­est state to con­sider a far-reach­ing tax on in­ter­net ser­vices, a vir­tual gold mine for gov­ern­ments try­ing to raise money to prop up ru­ral ar­eas that have steadily lost busi­nesses and res­i­dents to At­lanta and other cities. Only a hand­ful of other states have im­posed this kind of tax so far, but sim­i­lar pro­pos­als have been in­tro­duced in leg­is­la­tures across the coun­try.

Both Gov. Brian Kemp and Lt. Gov. Ge­off Dun­can have ex­pressed reser­va­tions about the idea.

The pro­posal pits cur­rent cus­tomers against com­mu­ni­ca­tion com­pa­nies such as AT&T, who stand to profit be­cause the dig­i­tal tax would re­place ex­ist­ing, higher taxes on ca­ble TV, phones and broad­band equip­ment.

A ru­ral-ur­ban di­vide

About 66 per­cent of Ge­or­gians op­pose the idea of tax­ing in­ter­net, TV and phone ser­vices to raise money for ru­ral in­ter­net, ac­cord­ing to a statewide poll con­ducted last month for The At­lanta Jour­nal-Con­sti­tu­tion.

“We in the city have been taxed enough,” said Bev­erly Barnes, an At­lanta re­tiree who was ques­tioned for the poll. “I look at my ca­ble and cell­phone bill, and I see we have enough fees. Most peo­ple move to the coun­try be­cause it’s cheaper out there. Let them pay for that.”

But state Rep. Jay Pow­ell, the chair­man of the pow­er­ful House Rules Com­mit­tee, said cus­tomers have avoided pay­ing sales taxes on dig­i­tal prod­ucts, cre­at­ing in­equities be­tween old and new tech­nolo­gies. For ex­am­ple, a book pur­chased at a store is sub­ject to sales taxes, but a down­loaded e-book is taxfree.

He said those who have high-speed ac­cess should pay a tax to sup­port Ge­or­gians who lack high-speed in­ter­net, which has be­come a ne­ces­sity for busi­ness, ed­u­ca­tion and health care.

“We are all part of the same state, and we help each other,” said Pow­ell, a Repub­li­can from Camilla. “If At­lanta ben­e­fits, then the rest of Ge­or­gia ben­e­fits. If the ru­ral sec­tion of Ge­or­gia ben­e­fits, then At­lanta ben­e­fits. We’re all in it to­gether.”

Dis­com­fort over new taxes

Nearly 60 lob­by­ists for ca­ble, TV and cell­phone com­pa­nies are mak­ing an ar­gu­ment that it’s only fair that ev­ery ser­vice be taxed equally.

Cur­rently, var­i­ous taxes and fees cover ca­ble TV and phones but not satel­lite TV and in­ter­net video.

The re­sis­tance comes from leg­is­la­tors who op­pose new taxes, con­sumers who would pay the tax and Dish TV, which doesn’t stand to ben­e­fit from govern­ment fund­ing of ru­ral in­ter­net since it al­ready pro­vides satel­lite-based on­line ac­cess to those ar­eas. Be­fore a sim­i­lar dig­i­tal tax pro­posal failed last year, Dish TV ran TV ads urg­ing view­ers to “Stop the Ge­or­gia TV tax!”

Leg­is­la­tion for the tax pro­posal hasn’t been in­tro­duced yet in Ge­or­gia, but a bill is com­ing from a group of in­flu­en­tial ru­ral House law­mak­ers who have made in­ter­net ac­cess a pri­or­ity. They say the state govern­ment needs to spread around some of metro At­lanta’s eco­nomic pros­per­ity. Other law­mak­ers are un­com­fort­able with the idea of a tax in­crease.

For a Net­flix cus­tomer with a $12.99 monthly plan, a 4 per­cent tax would cost 52 cents per month, or $6.24 per year.

Ru­ral Ge­or­gians such as Twalla Whit­lock, who sub­scribes to satel­lite in­ter­net ser­vice, said they need faster, more af­ford­able in­ter­net op­tions.

“It’s ex­pen­sive,” said Whit­lock, a Brooks County res­i­dent who works in so­cial ser­vices and re­sponded to the AJC poll. “If they had more tow­ers out here, it would be cheaper. In a lot of ar­eas, they have lim­ited ser­vice.”

The tax, com­bined with the re­peal of ex­ist­ing taxes and fees, would gen­er­ate $48 mil­lion in 2021 and reach $310 mil­lion by 2024, ac­cord­ing to state es­ti­mates. Rev­enue would be split be­tween state and lo­cal gov­ern­ments. The state por­tion would go into the gen­eral trea­sury, mean­ing there’s no guar­an­tee it would go to help in­crease in­ter­net ac­cess in ru­ral Ge­or­gia. The state can’t ded­i­cate fund­ing with­out chang­ing the state con­sti­tu­tion.

With­out state fund­ing, in­ter­net com­pa­nies say it doesn’t make fi­nan­cial sense for them to ex­pand into less pop­u­lated ar­eas, where ac­cess is spread among fewer cus­tomers. State leg­is­la­tors want to sub­si­dize in­ter­net com­pa­nies’ costs to ex­pand into re­gions that lack broad­band ser­vice.

Less ac­cess, fewer op­por­tu­ni­ties

About 638,000 house­holds — 16 per­cent of the state — lack ac­cess to in­ter­net with speeds of at least 25 megabits per sec­ond, ac­cord­ing to a Univer­sity of Ge­or­gia study.

In­ter­net speeds in the 25 Mbps range are im­por­tant to work from home, study on­line, down­load files and stream high-def­i­ni­tion video, ac­cord­ing to the Fed­eral Com­mu­ni­ca­tions Com­mis­sion.

State Sen. Steve Gooch said he wants to find money for ru­ral in­ter­net ex­pan­sion, but he’s not con­vinced a dig­i­tal ser­vices tax is the way to do it.

He said fund­ing could come from an ex­ist­ing fund for land­line tele­phone ex­pan­sion, and he op­poses tax­ing satel­lite dishes be­cause they don’t use pub­lic rights of way.

“We should ex­haust all op­tions and re­view our ex­ist­ing tax frame­work for in­ter­net, tele­phone, broad­band and satel­lite ser­vices be­fore mak­ing any de­ci­sions,” said Gooch, a Repub­li­can from Dahlonega.

State Rep. Vi­ola Davis, a DeKalb County tax­payer ad­vo­cate be­fore she was elected last year, said she’s skep­ti­cal of the pro­posal.

“I get real un­com­fort­able when they want to tax an area and then re­dis­tribute that money to an­other area,” said Davis, a Demo­crat from Stone Moun­tain. “If you do the tax, the tax will be on pri­mar­ily the ur­ban home­own­ers and users of in­ter­net.”

Sim­i­lar tech­nolo­gies should be taxed evenly, but it’s of­ten un­pop­u­lar when elected of­fi­cials try to put a tax on ser­vices such as Net­flix that have so far es­caped the govern­ment’s reach, said John Buhl, a spokesman for the Tax Foun­da­tion, a Washington-based think tank. States in­clud­ing Hawaii, Penn­syl­va­nia and Washington tax stream­ing ser­vices.

“Peo­ple think of Net­flix, and they like Net­flix, and they say, ‘Why are you try­ing to tax my Net­flix?’” Buhl said. “Things that were goods in the past are now ser­vices in the dig­i­tal era, and states need to deal with that. Other­wise, their tax base will get smaller quickly.”

Ge­or­gia al­ready im­posed sales taxes on prod­ucts sold on­line, which went into ef­fect Jan. 1. But elec­tronic goods re­main un­taxed.

Ca­ble vs. satel­lite

Ca­ble com­pa­nies sup­port broad­en­ing the tax base among all TV and in­ter­net cus­tomers — not just those that have ca­ble and are al­ready pay­ing govern­ment fran­chise fees — Ge­or­gia Ca­ble As­so­ci­a­tion lob­by­ist Stephen Loftin said.

“Clearly, when you’ve got some ser­vices that pay a tax and oth­ers don’t, there’s an eq­uity sit­u­a­tion that needs to be ad­dressed, par­tic­u­larly when the ser­vices are in­dis­tin­guish­able to the con­sumer,” Loftin said. “The only dif­fer­ence is the tech­nol­ogy used to de­liver it.”

The Ge­or­gia Ca­ble As­so­ci­a­tion’s mem­bers in­clude Char­ter Com­mu­ni­ca­tions, Com­cast and Cox Com­mu­ni­ca­tions, the ca­ble and broad­band in­ter­net sub­sidiary of Cox En­ter­prises, which also owns the AJC. Cox pro­vides ca­ble, in­ter­net and phone ser­vices in Mid­dle Ge­or­gia, pri­mar­ily in the Ma­con and Warner Robins area.

AT&T is the largest force of the telecom­mu­ni­ca­tions in­dus­try at the Ge­or­gia Capi­tol, with the big­gest ser­vice area and the most lob­by­ists — 23 — ac­cord­ing to state ethics com­mis­sion records.

It wants any tax on in­ter­net ser­vices to also elim­i­nate sales taxes on broad­band equip­ment, sav­ing money for tele­com com­pa­nies. A House coun­cil of ru­ral leg­is­la­tors in­cluded the elim­i­na­tion of broad­band equip­ment taxes in its rec­om­men­da­tions.

“The state’s first step to spurring broad­band de­ploy­ment should be elim­i­nat­ing govern­ment-im­posed eco­nomic and pro­ce­dural hur­dles that sti­fle pri­vate cap­i­tal in­vest­ment,” AT&T spokes­woman Ann El­sas said. “Once that has oc­curred, the state can as­sess the need for any ad­di­tional steps like sup­ple­ment­ing fed­eral ef­forts to help en­hance broad­band de­ploy­ment in hard-to-reach, high-cost ar­eas.”

Net­flix didn’t re­spond to re­quests for com­ment. Com­cast re­ferred ques­tions to the Ge­or­gia Ca­ble As­so­ci­a­tion.

Dish, the satel­lite TV and in­ter­net provider, char­ac­ter­ized the tax as a hand­out for “big ca­ble.” Dish spokes­woman Karen Modlin said the com­pany is the only statewide provider of video and broad­band, with­out hav­ing to use lo­cal in­fra­struc­ture.

“We hope that the Leg­is­la­ture will rec­og­nize that in­no­va­tion can be achieved with­out sad­dling satel­lite cus­tomers with new and un­war­ranted taxes,” Modlin said.

Char­lie Hayslett, the owner of an At­lanta-based pub­lic re­la­tions firm who is writ­ing a book about the di­vide be­tween metro and ru­ral parts of Ge­or­gia, said the tax plan for ru­ral broad­band could be an ex­pen­sive waste of money.

While in­ter­net ser­vice is im­por­tant for ru­ral Ge­or­gia, he ques­tions whether a govern­ment sub­sidy would solve the area’s con­nec­tiv­ity prob­lems.

“I’m all for help­ing ru­ral Ge­or­gia,” Hayslett said, “but I’m also tired of be­ing asked to sit in grid­locked traf­fic while the Gen­eral As­sem­bly uses my tax money to buy a pig in a poke for South Ge­or­gia.”

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