May 23, 2007 2:30 PM PDT    Text size: 

The Internet Tax Freedom Act, passed in 1998, says that local governments generally cannot tax Internet access, including DSL, cable modem and BlackBerry-type wireless transmission services. The law also prohibits governments from taxing items sold online differently from items sold at brick-and-mortar stores. It does not deal with sales taxes on online shopping.

The House Judiciary Committee's Subcommittee on Commercial and Administrative Law held a brief oversight hearing on whether the restriction should be made permanent or allowed to lapse on Nov. 1.

"If we could liken the Internet to a mall, a place where you can go in and purchase goods and services, and also liken it to a library, a place where you can go and pull a book, pull a resource, and obtain some information," Rep. Hank Johnson, D-Ga., said, "Why would we tax a person upon entering a mall or why would we tax a person upon entering the library?

Internet access providers support making the tax ban permanent, and Rep. Anna Eshoo, D-Calif., who represents California's Silicon Valley, introduced the "Permanent Internet Tax Freedom Act" in January. Similar bills have been proposed in the Senate.

State and local governments want to end the tax ban, because extending it would deprive states of revenue indefinitely, and that the original purpose of the tax ban — encouraging use of the Internet — has essentially been accomplished.

"If a moratorium is made permanent, there is a slippery slope where other industries will seek their own preemptions of state laws," David Quam, director of federal relations for the National Governors Association, said.

Quam said that the NGA supports extending the ban in a limited sense and for a defined time period. Reports by government auditors and the University of Tennessee have shown no statistical correlation between levels of broadband penetration and the existence of Internet access taxes, according to Quam.

"Taxes always impact everything else in our economy," Rep. Jim Jordan, R-Ohio, one of 66 House members who co-sponsored the permanent ban proposal, said. "I would assume they've had a major impact in this area as well."

A U.S. Senate committee considered the issue at its own hearing Wednesday.