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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 connections.

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 governments."

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.