Permanent Extension of the Federal Internet Tax Freedom Act (ITFA) - What You Should Know

NOTE: This Article Replaces the Article Dated July 12, 2012. See the prior article…

  1. What is the Internet Tax Freedom Act (ITFA)?

    The ITFA is federal legislation banning states and local governments from imposing sales tax on Internet access. The ITFA was set to expire on October 1, 2016 but the ban was made permanent on February 24, 2016.

  2. Is Internet access taxable in Wisconsin?

    Yes, sales of Internet access services are subject to Wisconsin sales or use tax when the customer's place of primary use is in Wisconsin.* However, the permanent extension of ITFA includes a provision that bans grandfathered states, such as Wisconsin, from taxing Internet access services after June 30, 2020. Therefore, charges for Internet access services in Wisconsin will not be taxable as of July 1, 2020.

    *Section 77.522(4)(a)9., Wis. Stats. (2013-14), defines "place of primary use" to mean the residential street address or the primary business street address of the customer. In the case of mobile telecommunications services, "place of primary use" means a street address within the licensed service area of the home service provider.

  3. Are purchases made over the Internet taxable in Wisconsin?

    Yes, Wisconsin sales or use tax applies to taxable products and services purchased over the Internet and shipped to a location in Wisconsin. The permanent ban on state and local taxation of Internet access charges does not affect the taxability of items bought over the Internet. Taxable products and services purchased over the Internet will continue to be subject to Wisconsin sales or use tax on and after July 1, 2020.

    If a buyer does not pay tax to the seller on the purchase of a taxable product, the buyer must pay use tax to the Wisconsin Department of Revenue if the product is used, stored, or consumed in Wisconsin. For example, if you buy clothing or appliances from a seller located outside Wisconsin, and the seller does not charge you tax, you are liable for the payment of use tax. Businesses may report this use tax on their Wisconsin Sales and Use Tax Return or on Form UT-5. Individuals may report their use tax on their individual income tax return or on Form UT-5.

May 10, 2016