Senate Trips-Up Net Taxation Ban

Gretchen Gallen
WASHINGTON, D.C. – Senators are getting anxious as the deadline for a decision on Internet taxation grows near. The original deadline was Nov. 1 and has since been temporarily postponed twice by the Senate, which has remained in gridlock over the bill's wording.

Lawmakers are aiming to finally resolve the issue before the Thanksgiving holiday weekend, and while some senators remain hopeful that only a small percentage of the Senate is in disagreement over the taxation ban, the opposition remains fierce.

Infact, the U.S. Senate is so conflicted over the issue that one senator was quoted as saying that he would obstruct a critical year-end spending bill if it included a ban on Internet-access taxes.

The revised and updated 1998 bill before the Senate, which has already passed in The House of Representatives, expands on the definition of Internet access and would prevent states from taxing telecommunications services used to provide Internet access, particularly DSL and cable modem.

New wording in the bill also says that states can no longer tax telecommunications services such as telephones, cell phones, and pagers to the extent that "such services are used to provide Internet access."

Some critics say that the taxation bill pits state and local governments against technology and telecommunication companies.

The belief among senators in opposition to the bill, and the reason a resolution has proven impossible to achieve so far, is that a permanent ban on Internet taxation could cost state and local governments millions of dollars in lost taxes against the telecommunications industry.

The states that were originally exempt from the reach of the taxation ban under a grandfather clause are: Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington, and Wisconsin.

The Congressional Budget Office estimates that repealing the grandfather clause would result in $9 billion in lost revenue for those states. The debate is only limited to Internet access fees and does not affect sales taxes paid on purchases made over the Internet.

And while extending the ban would hardly affect the states that have so far been held to the terms of the 1998 bill, states that have been exempt stand to be hurt the most if the moratorium is extended.

Democratic Delaware Sen. Thomas Carper told reporters he would try to keep the bill from coming to the Senate floor if the ban was included in its present form. Carper claims the bill infringes on the rights of state and local governments to raise revenues, and he encouraged other senators to join him in his opposition.

Republican Sen. Lamar Alexander is calling the ban proposal an "unfounded mandate on states and a massive tax break for the telecommunications industry." Alexander is calling for a two-year ban as a compromise, pending future technological evolutions within the Internet and telecommunications industries.

However many senators believe that a permanent ban would ensure the original intention of the bill, which was to make the Internet accessible and affordable to everyone and not inhibit the telecommunications industry from the build-out of broadband.

Those senators also believe that an extension of the bill, as opposed to making it permanent, would leave a wide-open gap for states to impose additional compensatory taxes on the Internet.