RealTime IT News

Senate Brokers Internet Access Tax Deal

Senate negotiators said late Wednesday afternoon that they had cleared the way for Congress to approve a new Internet access tax moratorium that will ban tariffs on most dial-up and broadband connections for the next four years.

The Internet Tax Non-Discrimination Act (S. 150) extends the original Internet Tax Freedom Act of 1998, authored by Sen. Ron Wyden (D-Ore.) and Rep. Chris Cox (R-Calif.). The moratorium created by that legislation and then extended in 2001 expired last November.

The new legislation renews the grandfather clause in the original act that allows the 10 states taxing dial-up access before 1998 to continue to do so. It also exempts for two years states that began taxing non-dialup access after the original moratorium passed.

"Renewing this law will protect consumers from a host of new Internet taxes on everything from Web access to e-mail and has saved those online businesses from becoming tax collectors for thousands of jurisdictions," Wyden said in a statement. "Banning unfair and discriminatory taxes has worked for the Internet economy."

The bill became a serious source of contention in the 108th Congress after Sen. Lamar Alexander (R.-Tenn.) and others complained the original language of the legislation could be interpreted to include a tax ban on a number of IP services, most notable Internet telephony.

The ban now is limited to three types of taxes: Internet access, double taxation of a product or service bought over the Internet and discriminatory taxes that treat Internet purchases differently from other types of sales. The ban covers dial-up, DSL, cable modems and wireless Internet connections.

It does not cover the application of any federal, state or local regulatory fees or other telecommunication services that are not purchased or used directly to provide Internet access.

"This proves the Senate can come to a good result on a complex issue that affects millions of Americans and every state and local government," Alexander said in a statement. "This compromise balances well two important principles: federalism and free markets. It temporarily bans state and local taxes on Internet access while doing minimal harm to state and local governments."

Sen. Tom Carper (D.-Del.), who worked with Carper to protect state interests in the bill, said in a statement, "The end result isn't perfect, but it is a big victory for states and for enhancing the development of the Internet. More than a year ago, the Senate was prepared to pass legislation that would have done irrevocable harm to state and local governments."

As originally introduced by Wyden and Sen. George Allen (R-Va.), the legislation called for a permanent ban on all Internet connections, including broadband services not contemplated in the original bill.

"The compromise we worked out will do minimal harm to states, while also protecting consumers from taxes on their monthly Internet bills," Carper said.

The bill now goes to the House, where it is expected to gain approval. President Bush has said he will sign the legislation.