Are Kansas charges for internet access taxable, and does it matter if the federal ITFA moratorium expires?

Plain-English summary

A taxpayer asked what would happen to Kansas taxation of internet access charges if the federal Internet Tax Freedom Act (ITFA) moratorium — which barred states from taxing internet access — was allowed to expire. (At the time, ITFA's moratorium was set to expire November 1, 2014.)

The Department's answer: nothing changes in Kansas. Kansas sales tax applies to telecommunication services under K.S.A. 79-3603(b), but the definition of "telecommunication service" in K.S.A. 79-3602(aaa)(6) specifically excludes "internet access services." Because Kansas law itself carves internet access out of the tax, charges for internet access sourced to a Kansas location are not — and will not be — subject to Kansas sales tax as long as that exclusion stays in place. So even if Congress let the federal ITFA moratorium lapse, Kansas would require no change in the taxes it collects on internet access charges or on the telecommunications that providers buy to deliver internet access.

The Department added that this guidance will remain in effect for at least 60 days after it publishes notice on its website that the guidance has been withdrawn.

What this means for you

Internet service providers and telecom billers

Kansas does not tax customer charges for internet access, and the state's treatment does not depend on the federal ITFA moratorium — it rests on Kansas's own statutory exclusion in K.S.A. 79-3602(aaa)(6). You don't need to start taxing internet access charges if the federal moratorium changes.

Businesses buying internet/telecom services

Internet access charges billed to a Kansas location are not subject to Kansas sales tax. Note that other telecommunication services remain taxable — the exclusion is specific to internet access.

Common questions

Q: Does Kansas tax charges for internet access?
A: No. K.S.A. 79-3602(aaa)(6) excludes "internet access services" from the definition of taxable telecommunication services, so internet access charges sourced to Kansas are not subject to sales tax.

Q: If the federal ITFA moratorium expires, will Kansas start taxing internet access?
A: No. Kansas exempts internet access under its own law, so an expiration of the federal moratorium requires no change in what Kansas taxes or collects.

Q: Are other telecommunication services still taxable?
A: Yes. Kansas taxes telecommunication services under K.S.A. 79-3603(b); only internet access services are excluded from that taxable category.

Q: How long does this guidance last?
A: The Department stated it remains in effect for at least 60 days after the Department publishes notice on its website that the guidance has been withdrawn.

Citations and references

• K.S.A. 79-3603(b) — imposes Kansas sales tax on charges for telecommunication services.
• K.S.A. 79-3602(aaa)(6) — defines "telecommunication service" and specifically excludes "internet access services," the statutory basis for Kansas not taxing internet access regardless of the federal ITFA moratorium.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2014-003

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 26, 2014

XXXXXX
XXXXXX
XXXXXX

RE: Your letter dated August 8, 2014

Dear XXXXXX:

Thank you for your recent letter. The Internet Freedom Act (ITFA) imposes a Federal moratorium on state taxation of customer charges for internet access services. ITFA was first passed by Congress in 1998 and has been extended three times, in 2001, 2004, and 2007. The current ITFA moratorium is set to expire on November 1, 2014. (11/1/2014).

K.S.A. 79-3603(b) imposes Kansas sales tax on charges for telecommunication services. K.S.A. 79-3602(aaa)(6) defines "telecommunication service" and specifically excludes "internet access services" from its meaning. This express exclusion defeats any suggestion that another Kansas imposition on services can be construed as taxing charges for internet access services. Charges for internet access services sourced to a Kansas location are not and will not be subject to Kansas sales tax as long as K.S.A. 79-3602(aaa)(6) remains in place. Because charges for internet access services are exempted by Kansas law, any amendments to ITFA will not affect the Department's ongoing exemption of internet access charges.

The current ITFA moratorium prohibits states from taxing telecommunication services that internet service providers buy and use to provide their services to customers. It also prohibits states from taxing customer charges for a variety of other services, including electronic mail, video clips, and personal electronic storage capacity, among others. Unlike internet access services, K.S.A. 79-3606(aaa) does not exclude any of these services from the definition of "telecommunications services."

If the current ITFA moratorium expires on 11/1/2014 without Congressional action, please be advised that no changes will be required in the taxes to be collected or remitted with respect to charges for internet access, as defined by the ITFA section 1105(5)(A), telecommunications purchased, used, or sold to provide internet access, as described in ITFA section 1105(5)(B), and the services described in ITFA section 1105(C) and (E) (including a home page, electronic mail and instant messaging, video clips, and personal electronic storage capacity).

This guidance shall remain in effect for at least 60 days after the Department publishes notice on its website that such guidance has been withdrawn.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

cc: Nick Jordan

Date Composed: 08/27/2014 Date Modified: 08/27/2014

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