Senator Moves to Block Internet Tax

Matt O'Conner
WASHINGTON — After successfully leading an effort to block state governments from imposing taxes on web businesses, Sen. George Allen, R-Va., is now fighting to keep the web free from federal taxes.

Allen this week introduced legislation that would keep both dial-up and broadband services tax free. The move is a response to a growing movement in Congress to extend the century-old federal excise tax on telephone services to the Internet.

“I will be introducing legislation to keep the federales from imposing a tax on the Internet,” Allen said before Monday’s Congressional session, taking a mild swipe at the FET, which was initially intended as a temporary measure to fund the Spanish-American War.

Since January, Allen has been rallying support from both fellow Republicans and key Democrats to quash a recommendation made by the House and Senate joint tax committee to levy a 3 percent FET on Internet use.

"When the temporary tax on telephones was passed in 1898, there were just 1,300 telephones; they really were a luxury item," Allen said. "Today 200 million Americans use the Internet, not just plain old telephone service. Over 55 percent of them surf the Net on high-speed, broadband connections.”

Last July, the IRS and Treasury Department hinted that the Spanish-American War tax on phone calls could be interpreted to include new technologies, such as the Internet, a claim Allen refutes.

“Outdated taxes like the FET stop Americans from using new, innovative and increasingly integral Internet services like VoIP,” Allen said. “The principle of my [bill] is to make the Internet remain as accessible as possible to all people in all parts of our country, forever."

In 2004, Allen spearheaded a bill to prohibit state and local governments from setting web surcharges. As part of a compromise, however, VoIP was left out of the final draft passed into law because it is considered a telephone service. The FET on phone services brought in an estimated $5 billion in tax revenues last year.

At the time, many lawmakers argued that the law would deny states and communities significant revenues, an issue that is sure to come up again when debate begins on Allen’s current bill, which also would repeal the VoIP tax.

But Allen said the government, and the economy as a whole, would benefit more from revenues created by unfettered growth of the Internet and services such as VoIP than from any possible tax revenue.

"By expanding this [FET] tax, the federal government would hinder the investment and deployment of broadband services and would impact the economic growth of small businesses, especially in smaller towns and rural areas," said Allen.