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House Bill Opens Door to E-mail Tax

As legislators inch closer to passing an extension to state and local Internet access tax ban, a recent vote by the U.S. House of Representatives last week may have inadvertently left the door open for taxation on e-mail and other services.

John Luckey, a lawyer from the government's Congressional Research Service (CRS), warned earlier this week that language in the House's tax ban bill -- H.R. 3678, the Internet Tax Freedom Act Amendments -- may not address issues of taxation on other online services.

Luckey, a legislative attorney for the CRS's American law division, said in an Oct. 24 memorandum to Sen. Ron Wyden (D-Ore.) that the House bill's language might not apply to paid services like e-mail, which aren't necessarily provided by a user's ISP.

"The 'enables users to connect' language... would limit the moratorium to taxes upon the connection provider and services they provide," Luckey wrote. "Thus, if an Internet user utilized one provider to connect to the Internet and another paid provider of, for instance, e-mail services, the connection provider would be covered by the moratorium but not the paid e-mail provider."

The House passed its version of the tax ban extension Oct. 16.

Unlike that bill, the Senate's version, which passed yesterday by a wide margin, retains the less-restrictive language of the original law.

However, the Senate and House versions need to be reconciled before the bill can be submitted to President Bush for his signature.

Wyden, who serves on the Senate Finance committee and who co-authored the original 1998 Internet Tax Freedom Act, brought up Luckey's memorandum on the Senate floor yesterday to prevent the House language from being incorporated into the bill's final version.

"If you ...get your Internet access from Verizon, under the House language, that would continue to be protected," Wyden said. "But if you get your e-mail from, say, another provider -- perhaps EarthLink or Google or Yahoo -- under the language that was passed by the other body, that could be taxed. I do not think any member of this body wants that to happen. Also... it would also allow the taxation 'of many more products and services than the existing exemption under the current moratorium.'"

Unless the Senate and House pass a conference bill and submit it to the president for signature before Nov. 1, the existing moratorium will expire.