Senate Approves Internet Access Tax Ban

The United States Senate broke an eight-month stalemate on Internet access
tax policy early Thursday evening, casting a 93-3 vote to ban state and
local tariffs on Internet connections for another four years.

While the compromise measure broadens the language of the recently lapsed
access tax moratorium to include high-speed connections, it also
grandfathers a number of states already taxing dial-up or DSL high-speed

The Internet Tax Non-Discrimination Act (S. 150) now goes to a joint
conference committee to hammer out a compromise with a sharply different
House of Representatives view on the same issue that calls for a permanent
ban on connection taxes across a number of platforms and eliminates all
grandfather clauses.

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. Sen. John Kerry, the
presumptive Democratic Party presidential nominee, was on the campaign trail
and missed the vote.

The solidarity of the final Senate vote masked the deep divisions
criss-crossing through party lines over Internet access taxation. Throughout
the three-day floor 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.

The last hurdle to final passage came when the lawmakers voted 59-37 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 ten states that taxed Internet
connections in 1998 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.

“This bill will ensure that consumers will never have to pay a toll when
they access the information highway,” Sen. John McCain (R.-Ariz.), the
principal power broker of the bill, said. “Plainly and simply, this is a
pro-consumer, pro-innovation and pro-technology bill.”

Fellow Republican Lamar Alexander of Tennessee, who led a highly successful
effort to limit the bill’s reach over concerns about the potential loss of
revenue to state and local taxing authorities, said, “This proves the Senate
can come to a good result on a complex issue. It temporarily bans state and
local taxes on Internet access while doing minimum harm to state and local

He added, “This bill is a huge improvement over that passed by the House.”

The legislation has been stalled in the Senate since July, when McCain’s
Commerce sent to the floor a version of the bill similar to the ambitious
House proposal. Since then, Alexander and his coalition of former governors
and mayors, including Feinstein, Thomas Carper (R-Del.) and George Voinovich
(R-Ohio), have blocked a vote on the measure.

Backed by an aggressive lobbying campaign led by the National Governors
Association and other state and municipal interests, Alexander 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) telephone service.

McCain’s successful compromise measure includes 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 primary victory for bill co-sponsors George Allen (R-Va.) and Ron Wyden
(D-Ore.) is putting DSL broadband service beyond the reach of those taxing
authorities not already imposing tariffs on the service. The original
moratorium in 1998 protected dial-up connections from access taxes and the
Federal Communications Commission currently exempts taxes on cable broadband
hookups, but DSL service is being taxed by an increasing number of states.

The bill now prohibits any further taxes on DSL and gives those states
taxing it two years to wean themselves off the revenue.

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