New Hampshire Clarifies That Internet Access Is Not Taxable

Tuesday, June 26th, 2012

New Hampshire

New Hampshire has enacted House Bill 1418 (HB 1418) clarifying that charges for Internet access are not subject to the state's Communications Service Tax (CST). 2012 N.H. Laws ch. 279, secs. 4-8.

Prior to HB 1418 becoming law, it was not clear whether, and to what extent, Internet access fees were subject to tax in New Hampshire. Even though New Hampshire does not impose a sales tax, the state does impose a CST on several communications-related services. Because the CST was originally enacted in 1990, long before the Internet was widely used, it did not directly address whether Internet access fees were subject to the CST. New Hampshire had imposed CST on some of the fees Internet service providers charged their customers when those fees were for services that fit within the definition of "communications services."

Congress stepped in and generally prohibited states from imposing tax on Internet access services when it enacted the federal Internet Tax Freedom Act and its subsequent amendments. But, those federal laws allow states that taxed Internet access before October 1998 to continue to do so (which is often referred to as a "grandfather" provision). Having been enacted in 1990, New Hampshire's CST was, "grandfathered," so New Hampshire was allowed to continue to impose the CST on Internet access.

In a 2006 declaratory ruling, New Hampshire's Department of Revenue Administration (DRA) stated that DSL services provided to end-user customers were subject to CST "to the extent that those services meet the definition of ‘communications services.'" In re: AB, Inc, Declaratory Rul. No. 8761 (N.H. Dept. of Revenue Admin. Nov. 17, 2006). After the federal Internet Tax Freedom Act was amended in 2008, the DRA clarified that it would continue to impose CST on Internet service providers' charges for telecommunications. N.H. Technical Info. Release No. 2008-006 (Dept. of Revenue Admin. Sept. 15, 2008). Ultimately, it was unclear how and when Internet access fit within the CST's pre-Internet era definitions of "communications" and "telecommunications," so, in spite of the DRA's guidance, it remained unclear whether Internet access fees were subject to CST. In particular, charges for accessing the Internet through broadband and wireless connections were especially problematic.

HB 1418 has seemingly resolved this ambiguity.

In order to clarify that providing Internet access is not subject to the CST, HB 1418 made a series of changes to New Hampshire's CST statutes. The law specifically excludes "Internet access" from the definition of taxable "communications services." Also, to add clarity, HB 1418 adds new statutory definitions for "Internet" and "Internet access." Furthermore, it specifically excludes charges for Internet access from the definition of "gross charge," which is the tax base on which New Hampshire imposes the CST.

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