Network Infrastructure Service Exempt as Internet Access Services in Pennsylvania

A Pennsylvania court has reaffirmed its decision that a provider’s sales of network infrastructure services to retail Internet service providers (ISPs) constitute Internet access services and are therefore tax-exempt. The court had previously held that the provider’s facility was a Point-of-Presence (PoP) that enabled ISPs to access the Internet, and its services were Internet access services exempt from sales and use tax under the Federal Internet Tax Freedom Act. The Commonwealth argued that the provider’s services constituted a technological advancement to taxable telecommunications services. The Commonwealth also argued that the provider was not providing internet access services because it always delivered end users to an ISP homepage and that the ISP, not the taxpayer, enabled end users to connect to the Internet. The court reaffirmed its prior finding that the technological differences between taxable telecommunications services and the provider’s network infrastructure services related to what services were provided, not how the services were provided. The court also reaffirmed that the provider’s PoP provided the access point for ISP end users to establish an Internet connection. As a result, the provider’s services remain exempt from Pennsylvania sales and use tax. (Level 3 Communications, LLC v. Commonwealth, 166 F.R. 2007 (Pa. Cmwlth. Dec. 8, 2016))

Posted on February 14, 2017