They tax the business end of the service.

The reality is the economic benefit to a local economy of having stable and accessible internet infrastructure is above and beyond what they collect in taxing the service.

If those tax dollars disappeared overnight and internet became a public utility backed by the state, the expansion of that service would create an economic boom which is just as taxable as the service itself.

Think about the tens of thousands of businesses which use this infrastructure and get taxed. That supersedes the taxation of a single company or group of companies providing the service.