Charlie Arlinghaus

April 18, 2012

As originally publish in the New Hampshire Union Leader

Taxes should be passed by the legislature not imposed through regulative fiat with legislative approval or disapproval. Regulators do not have the authority to tax internet access and have created a multi-million dollar budget liability by using the audit process to create an area of taxation that the legislature has not clearly imposed.

Some, but not all, legislators prefer tax administrators extending the limits of the law with the legislature having to act. But sensible government demands administrators administer clear laws and any ambiguity be cleared up by the policy making elected officials.

New Hampshire passed a communications tax in 1990. It applied to telephone calls and anything similar to telephone calls like faxing and the new area of mobile communications. It specifically excluded a form of computer processing that we now see as the internet.

 A Federal effort to pre-empting states from taxing internet services in 1998 was led by, among others, New Hampshire’s Judd Gregg in the Senate and John Sununu in the House. There was a list of states that were “grandfathered” because they already taxed the internet. New Hampshire was not on that list. We didn’t tax the internet and had no intention of taxing the internet.

If you had dial-up AOL or Compuserve for email or internet in the 1990s, you didn’t pay any communications tax to New Hampshire on your hourly charges or your $19.95 monthly bill.

The law was well understood to tax phone calls and not internet access. Areas of disagreement were over things like voice over internet which used the internet but wasn’t email but essentially a phone call.

In 2004, the revenue administration didn’t go to the legislature to change the law but instead proposed to extend the tax by regulation to a variety of internet services not currently taxed like email and chat rooms.

My organization attacked the plan with a short paper called “Bureaucratic Tax Proposals Subvert The Democratic Process.” I argued that tax changes should be passed and debated by the people we elect to make those decisions. Some, but by no means all, legislators preferred to evade accountability by having a commissioner make the proposal and take the heat. “We didn’t pass a new tax, the administrators cleaned up a loophole.”

Because of public scrutiny and public outrage over the imposition of new taxes through regulation, the department quickly backed off its proposal but lay in wait to fight another day.

That fight should have made clear what legislators understood the tax to apply to. But after a few years of cooling off, quietly and without any law change, the revenue department started auditing internet companies and telling them they should have been collecting internet taxes for years.

An audit is a big threat and hassle but it exists not to “maximize revenue” but to collect revenue fairly and ensure no one cheats. They exist to administer existing laws. If there is a reasonable question or questionable interpretation, it is up to the legislature to set policy.

In this case, the law does not provide for internet taxation. New Hampshire has not taxed the internet historically. Since New Hampshire’s current tax system began and precedent was set by not taxing internet service (as the law clearly suggests), no law has been passed at the state level changing anything. Without a change in law, there should not be a change in collection. The threat of an audit is not a substitute for legal authority.

This may seem like a small matter (forty or fifty dollars a year for most consumers) but there is an enormously important principle at stake here. We elect people to make policy decisions. They delegate the administration of those decisions to others but they remain responsible and accountable for the decision to take our money or not take our money.

Administrators are not subject to public forums, town meetings, debate with opponents of their decisions, or – most critically – elections.

Sen. Chuck Morse and Rep. Ken Weyler announced an effort to clarify for consumers and providers that New Hampshire does not tax the internet. Their language is charitable. It would be more accurate to say they need to step in and stop the administration from using its audit authority to create a policy that is not based in the law, is not based in the traditional interpretation and implementation of the law, and has no basis in the clear legislative intent. 

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