Local Governments Eye Internet Services for New Tax Revenue

As cable TV’s reign wanes, local governments are feeling the pinch in their coffers. The decline of cable TV has significantly impacted local governments’ revenue streams. With fewer Americans glued to traditional cable, the steady stream of tax revenue from local cable TV fees is drying up.

In Baltimore, the financial hit is evident. Baltimore, for instance, has seen a staggering $1.3 million deficit in the first quarter of 2023 alone, with cable TV subscriptions plummeting to just 24% of households. Desperate to plug this financial hole, Portland, Oregon, is eyeing the Internet as its next big cash cow, proposing a tax that could rake in a jaw-dropping $3.75 billion.

This bold proposal is stirring up a storm. This audacious move is sparking a fierce debate. Cities are clamoring for the Federal Communications Commission (FCC) to undo the protective changes made under former FCC Chair Ajit Pai. These changes currently shield streaming services from the kind of taxes that weigh down cable TV companies. On January 3, 2024, a coalition of local government representatives descended on the FCC, demanding the power to levy taxes on streaming and Internet services.

Under Ajit Pai’s leadership, the FCC stood firm against such taxes. Ajit Pai’s tenure at the FCC was marked by a staunch defense of Internet freedom from such taxes. He argued that the “mixed-use network ruling should be applied to prohibit Local Franchising Authorities (LFAs) from using their video franchising authority to regulate non-cable services offered over cable systems by incumbent cable operators,” as reported by NextTV. But now, a chorus of cities is pushing back, urging the FCC to dismantle these mixed-use rules and pave the way for taxing Internet services just like cable TV.

Internet subscribers may soon feel the impact directly. If this contentious proposal gains traction, Internet users nationwide could see their bills swell by about 5%. With the FCC’s current trajectory suggesting a rollback of Pai-era policies, there’s a growing anxiety that the commission might just greenlight this controversial taxation scheme.