RealTime IT News

Lawmaker To Nix Century-Old Tax on 'Net

In introducing tech-related legislation today, U.S. Sen. George Allen rolled out one of his favorite themes: old taxes and new technology are a bad combination. In particular, the Virginia Republican doesn't think a tax from the Spanish-American War has any place in an IP world.

Allen's Federal Internet Tax Prohibition Act of 2005 seeks to "wall off" the Internet from any attempts to apply the FET, which is currently a 3 percent charge on all local and distance services. During World War II, the FET jumped to more than 40 percent.

Strapped for war funding in 1898, Congress passed the Federal Excise Tax (FET) to help finance the war. The tax specifically targeted the country's emerging telephony industry, slapping a "temporary" tariff on telephone service.

But as is often the case with a temporary tax, it became permanent.

More than a hundred years later, the FET is still being charged on consumers' telephone bills and, increasingly, on Voice over IP services.

"I would hate to see the federal government put Americans at a global competitive disadvantage through such a harmful tax," Allen said in a statement.

"When the temporary tax on telephones was passed in 1898, there were just 1,300 telephones -- they really were a luxury item," Allen said. "Today 200 million Americans use the Internet, not just plain old telephone service. Over 55 percent of them surf the Net on high-speed, broadband connections."

He added, "Outdated taxes like the FET stop Americans from using new, innovative and increasingly integral Internet services like VoIP. The principle of my [bill] is to make the Internet remain as accessible as possible to all people in all parts of our country, forever," Allen said.

According to Allen, he decided to pursue the legislation when the Congressional Joint Committee on Taxation (JCT) inquired in January as to whether the FET should be applied to all Internet communications, including e-mail, VoIP, Internet video conferencing and other data traffic.

In addition, the IRS sought public comments last July on whether IP services should be subjected to the FET.

"By expanding this tax, the federal government would hinder the investment and deployment of broadband services and would impact the economic growth of small businesses, especially in smaller towns and rural areas," said Allen.

The legislation will be referred to the Senate Finance Committee for public hearings.