Internet access tax ban nears vote

As the clock ticks toward Saturday’s expiration of the federal ban on Internet access taxes, lawmakers are angling to keep the moratorium, while cash-strapped states aim to make sure it doesn’t cost them billions of tax dollars.

A bill making the moratorium permanent cleared the House in September and might make it to a Senate floor vote this week. A lingering key question: What constitutes Internet access, and what telecommunications services does such access include, if any. A number of senators have blocked action on the bill, HR 49, until the matter is clarified.

Double Breaks?

If passed, the bill would make permanent the current five-year moratorium on taxing Internet access. It would prohibit state and local jurisdictions from imposing new taxes on Internet access, either dial-up or broadband. The moratorium also would ban states from taxing online and offline purchases differently, such as imposing multiple taxes on an online purchase.

But the biggest sticking point is the definition of telecommunications services, which opponents call overly broad and ambiguous.

“Let’s not be so vague. We could be permanently exempting telecommunications taxes that some states are now collecting,” says Christine Lapille, a spokesperson for the National Governors’ Association.

Others are concerned that services now taxed, such as phone service, could escape taxation in the future by being bundled with nontaxable Internet access.

The bill’s language already makes clear that when a provider bundles taxable and nontaxable services, the entire package is taxable, says Mark Mullet, Verizon Communications Inc. vice president of government relations.

“States and localities are blowing this up,” Mullet says. “They’re saying telephone companies are never paying another penny in tax again. That’s just not true.”


Nevertheless, according to the Multistate Tax Commission, states would lose between US$4 billion and $9 billion in 2006 under the bill’s provisions.

These numbers seem exaggerated, says Mike DiConti, director of the Business Roundtable, an industry group of the largest 150 American companies. Because technologies are so fluid today, lawmakers shouldn’t be overly restrictive in their language, DiConti adds. “Not all contingencies can be written in today,” he says. Sen. George Allen (R-Virginia), a cosponsor of the moratorium bill, is “working with senators on an individual basis on issues that they may have concerning the bill,” according to Mike Waldron, an Allen spokesperson. Supporters say the bill has majority support in the Senate and should pass if it comes to a floor vote this week.

“This is not a partisan issue,” says John Berthoud, president of the National Taxpayers Union. “If this comes to a vote, I think it’s going to pass.”