The Internet Tax Freedom Act of 1998 implemented a moratorium preventing state and local governments from taxing internet access, or imposing multiple or discriminatory taxes on electronic commerce. Following the initial moratorium, a number of laws amended and extended the moratorium until it became permanent on February 24, 2016, as part of the Trade and Facilitation and Trade Enforcement Act of 2015.
The definition of “internet access” includes:
(a) a service that enables users to connect to the internet to access content, information, or other services offered over the internet;
(b) the purchase, use, or sale of telecommunications by a provider of a service described in (a) to the extent those telecommunications are purchased, used, or sold to provide that service; or to otherwise enable users to access content, information or other services offered over the internet;
(c) services that are incidental to the provision of the service described in (a) when furnished to users as part of that service, such as a home page, email and instant messaging (including voice and video capable email and instant messaging), video clips, and personal electronic storage capacity; and
(d) a home page, email, and instant messaging (including voice and video capable email mail and instant messaging), video clips, and personal electronic storage capacity, that are provided independently or not packaged with internet access.
Internet access does not include voice, audio or video programming, or other products and services (except services described in (a), (b), (c), or (d)) that utilize internet protocol or any successor protocol and for which there is a charge that is either separately stated or aggregated with the charge for services in (a), (b), (c), or (d).
Sections 40-21-80 and 40-21-100, Code of Ala. 1975, exempt internet access charges from the Utility Gross Receipts Tax and the Utility Service Use Tax.
Telecommunications services such as telephone services, cellular services, paging services, and fax services that are not used to provide access to the internet are subject to tax.
Section 40-21-82, Code of Ala. 1975, levies a privilege or license tax against every utility furnishing telegraph or telephone services in Alabama. The amount of the tax is determined by the application of rates against gross sales or gross receipts from the furnishing of such services in the state. Alabama code provides no exemption or exclusion for telephone services provided by the internet.
Section 40-21-82, Code of Ala. 1975, also allows providers of telephone services to combine or bundle taxable and nontaxable services on one invoice and charge the customer tax on the taxable charges.
Voice over Internet Protocol (VoIP) and any other form of telephony and similar services that utilize internet protocol are not included in the federal moratorium. These types of telephony and telecommunications services continue to be subject to the Alabama Utility Telecommunications Services Tax.