Net tax ban up for extension

U.S. Congress returns from its recess next week and is expected to consider extending a three-year moratorium on Internet access taxes that’s set to expire in October.

The legislation, passed in 1998, bans states from imposing taxes on charges levied by Internet service providers. Congress is considering extending the ban for five years, although some advocates want a permanent ban.

If the ban isn’t extended, Internet access prices could increase if tax administrators apply sales taxes to such services. But “a lot of states don’t seem that concerned about Internet access fees; they are much more concerned about tangible goods,” said Karl Frieden, a tax expert at Chicago-based consultancy Andersen Consulting Inc., referring to the sale of goods by out-of-state vendors that aren’t charged a sales tax.

Extending the moratorium also puts pressure on the states to simplify existing sales tax structures, “and that is what business wants,” said Mark Nebergall, president of the Software Finance and Tax Executives Council, a Washington-based association of software vendors and IT consulting firms that supports the moratorium on new Internet taxes.

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