The Washington Post: Senators Try to Break Impasse on Internet Taxes; New Bill Would Ban Levies on Service Provider Fees Only
Feb 11 2004
A bipartisan coalition in the U.S. Senate plans to try today to break the logjam over whether the cost of going online will be free of taxes.
As many as 10 Democrats and Republicans will introduce a new bill extending a ban on access taxes for two years, according to Senate staffers. A previous moratorium expired late last year, but efforts to renew it have been mired for months in a fierce struggle over whether to make the ban permanent and how much it might cost cash-strapped states in lost tax revenue.
The new bill's sponsors include those who led the fight to block the extension as originally proposed, Sens. Lamar Alexander (R-Tenn.) and Thomas R. Carper (D-Del.). They have gathered significant new support from Sen. Ernest F. Hollings (D-S.C.), the senior Democrat on the Commerce Committee, and Sen. Kay Bailey Hutchison, an influential Texas Republican.
Alexander and Carper, both former governors, argued that the original proposal could cost states as much as $9 billion by 2006 because it would probably eliminate taxes on virtually all telephone service as calls begin to travel over the Internet.
They want the tax ban to apply only to the fees consumers pay to their Internet service providers, not to the various businesses that run the telecommunications network that enables both telephone and Internet service.
The new bill would extend the ban for only two years, and would allow the roughly 25 states that tax DSL Internet access, which is delivered via phone lines, to continue to do so.
DSL service has been taxed because the original moratorium took effect before the Internet service was widely available to consumers. Because it uses phone lines, many states determined it was a phone service, subject to taxation under federal rules.
Cable-modem Internet access is not taxed.
Sens. George Allen (R-Va.) and Ron Wyden (D-Ore.), who sponsored the original, permanent ban on taxes, disagree that their bill would strip states of the ability to tax all telecommunications services. And they argue that DSL service should not be taxed differently from cable-modem service.
The House has passed a bill virtually identical to the Allen-Wyden proposal.
A Wyden spokeswoman said yesterday that the new bill is not a compromise, but simply provides "more loopholes for local tax collectors," whom Wyden accuses of wanting to tax all Internet services, including e-mail.
But governors and state tax authorities have pressed their case hard, and many senators have been wavering.
The Alexander-Carper strategy is to offer new legislation that will attract broad support, rather than trying to amend the Wyden-Allen bill.