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Net Access Tax Ban: No Compromise in Sight

Seven months after the expiration of the Internet access tax moratorium, Congress has yet to reach a compromise on the vastly different Senate and House versions calling for a new ban on connection taxes.

Last September, the House passed legislation to permanently extend a temporary ban on Internet taxes that had been in place since 1998 and set to expire on Nov. 1.

The bill covered both dial-up and broadband connections and eliminated a controversial grandfather clause covering 11 states that were taxing Internet connections prior to 1998.

Similar legislation passed the Senate Commerce Committee in July. The Senate bill, however, fell apart when it came up for a vote in October and it took until late April for a compromise to be reached: a four-year ban retaining the grandfather clause.

In the month since the Senate bill gained passage, neither the House nor the Senate has moved to reconcile the differences. A spokesperson for Rep. Chris Cox (R-Calif.), sponsor of the House version, told internetnews.com a joint House-Senate conference committee to iron out a compromise has not been appointed.

In the Senate, the official line is that the bill is in the hands of the House. Earlier this month, Cox said the House would seek "at least some elements of permanency" in a compromise with the Senate.

"Since the moratorium expired last November, the states, by right, could be taxing [Internet connections] right now," Storme Street, senior manager of government relations at the Electronic Industries Alliance (EIA), told an EIA political roundtable discussion Wednesday afternoon.

The cash-strapped states have not moved to tax access, Street said, because they are thinking, "'Why waste all that time when they know Congress will get it together and pass something.'"

Rosario Palmieri, staff director for the House Small Business Subcommittee on Regulatory Reform and Oversight, told the EIA roundtable, "I would find it shocking" if a compromise is not reached. "It is something people like Chris Cox care enough about that that they'll find a way," Palmieri said.

The path to compromise was difficult in the Senate where deep divisions criss-crossed through party lines over the issue. Throughout the debate, more than a third of the Senate consistently voted to shorten the duration of a new moratorium and to keep the access definitions much narrower in scope than envisioned in the House version.

Led by Sen. Lamar Alexander (R-Tenn.), opponents raised a number of concerns that the bill could be interpreted to exempt not only access but other services that might piggyback in with the connection, such as, Voice Over Internet Protocol (VoIP) .

Sen. John McCain (R-Ariz.) finally brokered a compromise with specific language that attempts to ensure nothing in the bill will affect state and local taxation of voice telecommunications services, VoIP, or other telecom services that are not purchased or used directly to provide Internet access.

The last hurdle to final Senate passage came when lawmakers agreed to table a motion by California Democrat Diane Feinstein to add two additional years to the grandfather clause for state and local authorities already taxing DSL connections.

Under the final Senate version, the states already taxing Internet connections are allowed to continue the tariffs for the life of the new four-year ban while states that began taxing tax high-speed wireline and wireless access after 1998 have two years to discontinue the practice.

The same issues are likely to plague the new House debate over the bill, but Palmieri predicted ultimate passage before the 108th Congress concludes its work early this fall.

"We've passed through so many roadblocks just to get where we are," he said. "Those who favor the moratorium in its fullest know they must make some [concessions]. They'll probably cave on the grandfather provisions."

President Bush, who has recently added a goal of ubiquitous American broadband penetration by 2007 to his re-election stump speeches, has said he will sign a new Internet access tax prohibition.