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By Brian Krebs
washingtonpost.com Staff Writer
Friday, October 31, 2003; 3:42 PM
The U.S. Senate will vote next week on a bill to permanently bar state governments from taxing Internet access. The Internet tax moratorium, which has been in effect since 1998, expires Saturday. The House of Representatives has already voted to make it permanent, but the Senate delayed its vote until late next week after several senators complained that the bill would deprive state governments of much-needed revenue.
Both versions of the bill exempt high-speed digital subscriber line (DSL) Internet access from taxation.
Supporters say this change is necessary because dozens of states and local governments are taxing DSL Internet access like regular telephone service. States have traditionally taxed telephone service, and they argue DSL should be taxed since it is delivered through regular phone lines. EarthLink, the nation's third-largest Internet service provider, said it is already required to collect taxes on consumer Internet DSL service in 25 states and the District of Columbia.
The bill also would strip 10 states of the right to collect Internet access taxes. These states -- Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington and Wisconsin -- were grandfathered in under the original 1998 access tax ban. They stand to lose collectively between $80 million and $120 million a year in tax revenue, according to the Congressional Budget Office.
The Senate version would allow the states to continue collecting Internet access taxes for three years, while the House's bill would eliminate the practice as soon as it is signed into law.
A group of senators from several of those states, led by Sens. Lamar Alexander (R-Tenn.) and George Voinovich (R-Ohio), blocked the bill from coming up for debate on the Senate floor earlier this week. They relented Thursday evening after receiving assurances that they would have an opportunity to air their concerns when the Senate debates the bill next Thursday.
Federation of Tax Administrators Executive Director Harley Duncan, echoing some of the concerns raised by state leaders, said the new moratorium bill would leave the nation's telecommunications companies far too much wiggle room to avoid taxes on a wide range of services.
Depending on how the Senate bill's language is interpreted, online movie and music downloads as well as other Internet services could also become tax-exempt. According to a September study by the Multistate Tax Commission, the bill could reduce state and local revenue bases by as much as $8.75 billion annually by 2006.
I don't know how you write a permanent bill for an industry that is changing so fast without shoveling a lot of unintended consequences on state and local governments, said David Quam, director of state and federal relations for the National Governors Association.
Bill sponsors George Allen (R-Va.) and Ron Wyden (D-Ore.) said they are working on changing the bill to address those concerns.
Right now the language in the bill is so clear that there is no room for misinterpretation, said Allen spokesman Mike Waldron.
WPTech
© 2003 TechNews.com
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