Harris’ Proposed Corporate Tax Hike Could Alter ISPs’ BEAD Plans

WASHINGTON, Sept. 30, 2024 – Billions of dollars are set to connect rural America to the digital world—but a new tax proposal could slash how much funding makes it to the ground.

Vice President Kamala Harris, the Democratic Party's presidential nominee, recently proposed increasing the corporate income tax from 21% to 28%, which could potentially have a major effect on the $42.5 billion allocated for high-speed internet expansion under the federal Broadband, Equity, Access, and Deployment program. 

Since BEAD funds are currently treated as taxable income, the higher 28% rate would mean that a substantial portion of the funding could be diverted right back to the U.S. Treasury rather than being used to build out broadband infrastructure.

The prospect of a 28% corporate tax rate may dissuade private investors and broadband ISPs from participating in BEAD-funded projects, as the increased tax burden would reduce their returns.

Large and small broadband providers have expressed concern that taxing broadband grants would undermine the effectiveness of BEAD.

Seven major industry groups sent a letter to members of Congress earlier this year to say providers were already struggling with inflation and supply chain challenges. They warned that adding a tax would further reduce the impact of this historic round of broadband funding.

Smaller broadband providers and cooperatives are particularly vulnerable by the taxation of broadband grants. Representing many rural companies, NTCA–The Rural Broadband Association has emphasized that these providers often have slimmer margins and face greater deployment expenses compared to their larger counterparts.

Last year’s attempt to pass the Broadband Grant Tax Treatment Act, which would have made federal broadband grants tax-exempt, failed to gain traction in Congress despite support from major tech and telecom companies. 

Meanwhile, efforts by the Wisconsin Assembly and Georgia House this year to exempt broadband grants from state taxes ultimately failed.

In Georgia, the Senate tabled the bill after it reached 50% completion, with the measure dying in chamber on March 26. Similarly, Wisconsin's bill failed on April 15. However, Michigan’s House passed a measure last week to ensure broadband funding can be fully deployed without state tax liabilities. 

Broadband grants have been subject to taxation since Trump-era tax changes. The 2018 Tax Cuts and Jobs Act required that broadband grants be treated as taxable income, removing the IRS’s authority to exempt certain grants. Community Networks reported the grant taxing provision passed with minimal hearings or public scrutiny.

Changes to the federal corporate tax would require congressional approval. With control of the House and Senate still uncertain, the future of these tax policies remains up in the air.