Why USF is a Regulatory Fee and Not a Tax

Certain technology companies object to participation in valuable connectivity programs like the Universal Service Fund (USF); they don’t participate today, largely because of regulatory forbearance and self-asserted exemptions. However, this view is increasingly untenable as the eight largest internet brands enjoy some $200 billion annually from USF-supported connections in the U.S. To discourage policymakers from addressing the legitimate question of how to preserve vital connectivity for underserved Americans, these companies argue that the USF is a “tax on the internet.”

First, one must distinguish the USF from the 2004 Internet Tax Freedom Act, which applies to ecommerce and explicitly limits state and local internet taxation on goods. The USF is an entirely different program: it is an assessment on certain telecommunications and internet service providers, collected and distributed by the bipartisan Federal Communications Commission. The funds are earmarked for maintaining and expanding broadband access to rural areas, low-income users, and anchor institutions. Unlike a tax, USF contributions are regulatory fees, assessed on the industry that benefits from and contributes to the network, not a general levy on the public.

Here are the reasons why the Federal Communications Commission’s Universal Service Fund (USF) is not a tax on the internet:

1. It’s a delivery fee, not a general levy:
   The USF supports the cost of infrastructure and access for low-income persons. Consumers aren’t being taxed on general income or online activity; instead, the fee ensures that traffic is delivered reliably and disadvantaged person can access the internet. Businesses have delivery fees, and the cost to deliver the growing volume of internet traffic is increasing. Big Tech refuses to pay the delivery fees, so government intervention is needed to recover this cost.
2. It targets service providers, not end users directly:
   By law, the USF is assessed on telecommunications and certain service providers. This is about funding infrastructure and access, not taxing personal internet usage or content consumption.
3. It supports public network infrastructure and access:
   USF contributions fund programs that expand broadband to rural, low-income, and underserved areas. Unlike a tax that goes into general government revenue, USF money is earmarked specifically for maintaining and expanding essential network infrastructure and access.
4. USF contributions are regulatory fees, not taxes.
   In Federal Communications Commission v. Consumers’ Research, the Supreme Court has confirmed that USF is a regulatory fee, collected by a self-financing government agency rather than the Treasury, and is fully compliant with appropriations and separation-of-powers requirements. Challenges claiming it is a “tax” misunderstand its structure: unlike general taxes, USF funds are collected from the industry being regulated—not from the general public—and support programs such as rural broadband and low-income access. This self-funding model is common among quasi-government entities, including the FDIC, 911 services, air traffic control, and FINRA. Past Supreme Court decisions confirm that fees can lawfully be set according to broad regulatory standards, preserving network connectivity without infringing constitutional limits.

For more information, check out Roslyn’s analysis of USF and broadband economics.