The moratorium was recently converted to a permanent provision as part of Trade Facilitation and Trade Enforcement Act of 2015 ( P.L. 114-125 ), after being previously extended eight times as a temporary provision. Under the Internet Tax Freedom Act (ITFA), states who taxed Internet access before 1998 can continue taxing Internet access through June 30, 2020. 105-277 ) imposed on state and local governments a three-year moratorium, from October 1, 1998, to October 1, 2001, on (1) new taxes on Internet access, and (2) multiple or discriminatory taxes on electronic commerce. It extended the Internet tax moratorium and the grandfather clause protections through November 1, 2003, but made no additional changes to the law. ITNA changed the definition of Internet access to include DSL connections under the moratorium. Changes in ITNA also excluded Voice over Internet Protocol (VoIP) services from the moratorium, allowing state and local governments to tax this service. In the 114 th Congress, ITFA was extended three times before the moratorium on taxing Internet access was made permanent by P.L. Moratorium on Taxing Internet Access

The moratorium on Internet access taxes established by ITFA and its subsequent extensions prohibits states or their political subdivisions from imposing any new taxes on Internet access services. One of the most significant effects of ITFA is that state and local governments cannot impose their sales taxes on the monthly payments that consumers make to their ISP, such as Comcast or AT&T, in exchange for access to the Internet. The Grandfather Clause

ITFA contained a grandfather clause to allow state and local governments to continue taxing Internet access if they already had a tax on Internet access that was generally imposed and actually enforced before October 1, 1998. Initially 13 states were included under the grandfather clause, but a number of states have voluntarily eliminated their Internet access taxes since the passage of ITFA. The grandfather clause protecting taxes on Internet access implemented before October 1, 1998, is set to expire on June 30, 2020 
In addition to the original grandfather clause established in ITFA, an additional grandfather clause was established as part of the Internet Tax Nondiscrimination Act (ITNA) for certain taxes on Internet access imposed and enforced before November 1, 2003. For further discussion of interstate electronic commerce issues see CRS Report R41853, State Taxation of Internet Transactions , by [author name scrubbed], and CRS Report R42629, "Amazon Laws" and Taxation of Internet Sales: Constitutional Analysis , by [author name scrubbed] and [author name scrubbed]. The inequitable tax treatment under the moratorium violates the principle of horizontal equity. However, the blanket nature of the moratorium, where both low- and high-income individuals receive the benefits of a lower tax burden, likely reduces the economic efficiency gains produced by this policy. A large number of individuals would likely choose to purchase Internet access even if the price was higher due to state and local governments applying taxes to the service.
The Internet Tax Freedom Act (ITFA; P.L. 105-277), enacted in 1998, implemented a three-year moratorium preventing state and local governments from taxing Internet access, or imposing multiple or discriminatory taxes on electronic commerce. Under the moratorium, state and local governments cannot impose their sales tax on the monthly payments that consumers make to their Internet service provider in exchange for access to the Internet. In addition to the moratorium, a grandfather clause was included in ITFA that allowed states which had already imposed and collected a tax on Internet access before October 1, 1998, to continue implementing those taxes.
Previously under ITFA, the moratorium on Internet access taxes and the grandfather clause were temporary provisions. With the passage of the Trade Facilitation and Trade Enforcement Act of 2015 (P.L. 114-125), the moratorium on taxing Internet access was extended permanently, while the grandfather clause was extended temporarily through June 30, 2020.
The original three-year moratorium had been extended eight times before being converted to a permanent statute. As the original moratorium was extended, changes were made to the definition of Internet access to include and exclude different services and technology. Notable changes include the inclusion of digital subscriber lines under the moratorium and the exclusion of Voice over Internet Protocol services from the moratorium.
Over time the grandfather clause has protected a decreasing number of states' abilities to tax Internet access. While 13 states previously taxed Internet access and were protected under the grandfather clause, 7 states now tax Internet access. In addition, changes made to ITFA in 2007 rendered the grandfather provision inapplicable for states that repealed or nullified their taxes on Internet access before the enactment of these changes.
As a public policy, the moratorium on taxing Internet access has economic and fairness implications. The policy likely improves lower income individuals' ability to purchase Internet access, which has economic benefits, but the blanket nature of the moratorium likely results in some economic waste. Additionally, the moratorium results in unequal application of state and local taxes to the provision of services depending upon how the services are delivered.
Under the moratorium, state and local governments are prevented from taxing Internet access. This may have implications for state and local government revenues and provision of services.
The Internet Tax Freedom Act and its subsequent extensions are often conflated with issues related to the taxation of electronic commerce across state borders. ITFA is largely unrelated to these issues. For a discussion of interstate electronic commerce and taxation issues, refer to CRS Report R41853, State Taxation of Internet Transactions, by [author name scrubbed], and CRS Report R42629, "Amazon Laws" and Taxation of Internet Sales: Constitutional Analysis, by [author name scrubbed] and [author name scrubbed].