U.S. Senate Moves to Ban Net Taxes

Gretchen Gallen
WASHINGTON – The U.S. Senate is once again mulling the issue of Internet taxation, only this time, President Bush is weighing in loud and clear that the 1998 moratorium on state and local taxes for Internet connections should stand.

"We must not tax broadband access," Bush said in a campaign speech. "If you want broadband access throughout the society, Congress must ban taxes on access."

Bush also vowed to make high-speed Internet access available to every U.S. home within three years.

On Monday, the Senate voted 74-11 in favor of enforcing the moratorium, and forced the vote onto the Senate floor where it will be subject to various amendments.

The Internet taxation issue became a sore point for the House and Senate last November when the Internet Tax Freedom Act (ITFA) of 1998 expired. Lawmakers bought chunks of time incrementally until finally deciding to revisit the issue sometime in 2004.

ITFA was written long before high-speed access ever existed, which has been an underlying crutch in the decision-making process for lawmakers, some of whom are eager to see the ban continued because it will effectively encourage the deployment of high-speed Internet service, while others are wary that the loss in revenue for state and local governments could be substantial.

Bush and certain lawmakers are also calling for a phase out of a grandfather clause in ITFA that exempts 10 states from the moratorium and allows them to tax telecommunications services in a way that other states cannot. By phasing out the clause, those states, which include Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington, and Wisconsin, would face a considerable loss of revenue.

A study released last fall by the Congressional Budget Office estimates that repealing the grandfather clause would result in $9 billion in lost revenue for those states alone.

The bill was scribed by Sen. George Allen (R-Va.) and is co-sponsored by Sen. Ron Wyden (D-Ore.). Additional senators have come up with a bill that only enforces the ban for another two years.

Allen's proposed bill would make it illegal for state and local governments to initiate new taxes on Internet access and would require any existing taxes to be phased out in three years.

"Now, the Senate has the opportunity to make sure that access to the Internet remains tax free and is thereby as accessible as possible to all people, in all parts of the country," Allen said.