Wyden: Ban Internet Tax For Good

With the start of a new Congress, it didn’t take Sen. Ron Wyden (D-Ore.) long to make a renewed pitch for a permanent ban on Internet connection taxes by federal, state and local authorities.

Shortly after the first gavel fell in the 110th U.S. Senate Thursday, Wyden, along with John McCain (R-Ariz.) and John Sununu (R-N.H.) introduced legislation to make permanent the current access tax moratorium on Internet connections, which expires on Nov. 1.

The Permanent Internet Tax Freedom Act would also prohibit double taxation of a product or service bought over the Internet and other discriminatory taxes that would treat Internet purchases differently from other types of sales.

The legislation defines Internet access to include dial-up, DSL, cable modem or wireless connections. Unlike previous efforts, the bill does not attempt to remove the grandfather clause in the current law exempting the 12 states that were taxing Internet access before 1998.

“Without this ban, consumers would face upwards of a 17 percent increase in their costs for access to the Internet and businesses would face a barrage of discriminatory taxes,” Wyden said in a joint statement with McCain and Sununu. “Why should a product that’s not taxed on the street or taxed in a store be taxed on the Internet?”

Wyden and former U.S. Rep. and current Securities and Exchange Commission Chairman Chris Cox introduced the first legislation calling for a permanent ban on discriminatory Internet taxes almost a decade ago.

They first won a three-year ban on connection taxes in 1998. Congress has twice extended the moratorium, most recently in 2004 for another three years, but has never permanently banned access taxes.

Wyden, McCain and Sununu also claim the lack of an Internet access tax has helped drive the widespread U.S. adoption of the Internet. In 1998, the year the moratorium was first enacted, 36 percent of U.S. adults reported using the Internet. Last year, that number grew to 73 percent — an all time high — according to an April 2006 Pew Internet & American Life Project Report.

“Simply put, taxing consumers for accessing the Web discourages Internet use, reduces investment, stifles innovation and limits the services available to consumers,” Sununu said.

In 2004, the U.S. House voted to make the access tax ban permanent and to strip away the exemptions granted to grandfathered states. The bill also expanded the original definition of access from dial-up to include broadband connections.

Similar legislation, backed by Wyden, Sununu and then Sen. George Allen, won approval in the Senate Commerce Committee chaired by McCain. The deal came undone when Sen. Lamar Alexander (R-Tenn.) organized a coalition of the states exempted under the grandfather clause. The group also opposed expanding the definitions of Internet access.

The House and Senate finally approved extending the existing moratorium for three more years with expanded definitions to include broadband access.

“Keeping Internet access affordable to all Americans is a worthy policy goal,” McCain said. “The Internet has become a fixture and core component of modern American life that has created and continues to generate social and economic opportunities throughout the United States.”

Sununu added, “State and local politicians should not be allowed to use the popularity of the Internet as an opportunity to broaden their tax base.”

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