Internet Access Tax Ban: Temporary or Permanent?


To ban or not to ban?

State and local governments support the moratorium on Internet connection taxes, but only on
a temporary basis. The benefits of broadband deployment, they admit, offset the
revenue loss to state and local governments.


But a permanent ban? Not so good, they said Thursday. Contrast that with technology executives and consumer and public policy advocates who have long contended the ban should be made permanent.


Whether the ban should be temporary or permanent is a critical question for
lawmakers, as the current four-year ban expiration date of Nov. 1 approaches. Congress has renewed the ban twice since the Internet Tax Freedom Act (ITFA) originally passed in 1998.


“The National Governors Association is calling for an extension [of the
moratorium],”
David Quam, the NGA’s director of federal relations, told an overflow
lunchtime crowd of Senate and House staffers. “A temporary answer is better
than a bad solution.”


Added Jeff Arnold of the National Association of Counties, “No one wants to
tax Internet access.”


Quam and Arnold support the four-year extension proposed by Republican
Senators Lamar Alexander of Tennessee and Tom Carper of Delaware. More
important than the length of the extension, Quam and Arnold contended, is the
bill’s definition of Internet access.


“We have to be clear on the definition of access,” Quam said, noting that
states fear the current definition could be construed to provide tax-free
Voice over IP (VoIP) and other bundled services offered by Internet service
providers.


The current ban is limited to three types of taxes: Internet connections;
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 moratorium covers dial-up, DSL, cable modem and wireless
Internet connections.


“NGA believes that the unlimited ability of providers to bundle together
content and ‘other services’ into a single, tax-free offering represents a
loophole,” Quam told a House panel last month.


Alexander and Carper claim their legislation fixes that loophole.


“Our bill would ensure that consumers continue to enjoy tax-free access to the
Internet, including e-mail and instant-messaging,” Carper said in a statement.
“In the meantime, we fix many problems with the current law so that as future
services, such as cable television, migrate to the Internet, we don’t
completely erode the tax base of state and local governments.”


The technology sector is supporting behind legislation proposed
by Senators Ron Wyden (D-Ore.) and John McCain (R-Ariz.), which would make the
ban permanent. Similar legislation
is pending in the U.S. House.


“It would be good if we could just make it permanent,” said Broderick Johnson
of Bryan Cave Strategies and the DontTaxOurWeb.org. “We previously debated
whether there should be a tax at all, but that debate is now over.”


Brian Bieron, eBay’s senior director of federal affairs, said he found it
“ironic” that state and local governments want only a temporary extension when
state and local government revenues “are at an all time high.”


What Johnson and Bieron do not like about any of the proposals is the
continuation of a grandfather clause that allows the nine states taxing
Internet connections prior to 1998 to continue to do so.


“The grandfather clause should end. Those states have had ample opportunity to
adjust,” Johnson said.


But with that proposal not on the table and the states not opposed to a
connection tax moratorium, the only choice before Congress is a temporary or
permanent ban.

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