In 1998, to encourage Internet expansion and use, Congress passed a temporary ban on city and state taxation of Internet access fees. But 10 states, including South Dakota, were exempted from the ban. (Also exempted: North Dakota and Wisconsin.) The ban was set to expire Nov. 1, but in mid-September, the House voted to make the ban permanent and also to remove all state exemptions. (A Senate bill would allow exempted states three more years to collect Internet taxes.)
If exemptions are eliminated, state officials estimate that South Dakota will lose over $2.5 million a year in tax revenues, the amount generated but the 4 percent state sales tax on Internet fees. Some cities also levy municipal taxes on Internet access. While that's just a fraction of the state's total revenue of $483 million, officials say making up the difference will be tough in these hard economic times.
—Douglas Clement
