'Net Tax Ban Renewal Hopes Fade for 2003

By Roy Mark | Posted December 08, 2003

U.S. Senate leaders remain divided over the duration of the next moratorium and the definitions of Internet access but, despite strong support in Congress to extend the ban either temporarily or permanently, the disagreements are likely to delay any legislation on the measure until mid-January at the earliest.

On Sept. 1, the U.S. House of Representatives overwhelmingly approved a permanent ban on Internet connection taxes. Similar legislation was pushed through the Senate Commerce Committee in July by Senators Ron Wyden (D-Ore.) and George Allen (R-Va.), but the bill later ran into opposition from Tennessee Republican Lamar Alexander, who expressed concern about the measure's financial impact on the states.

The bills also phase out the grandfather clause in the original moratorium that preserves state and local taxes on Internet access imposed and actually enforced prior to Oct. 1, 1998. Ten states — Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington and Wisconsin — are currently collecting taxes of approximately $80-$120 million annually under the grandfather clause provision.

Alexander has countered with an amendment to extend the language of the lapsed moratorium for another two years, preserving the grandfather clause for his and other exempted states and tweaking the language to cover digital subscriber line (DSL) connections. Wyden and Allen offered a compromise package that keeps the expanded definitions but limits the duration of a new moratorium to 3-5 years.

Unable to reach a compromise, neither side plans to ask for a floor vote when Congress reconvenes next week.

"Sen. Alexander has already done a lot of compromising on this bill," Alexia Pope, Alexander's press secretary, told said. "He went all the way from not wanting a moratorium at all to this compromise to extend the current moratorium."

Pope said there is "always a chance" of a compromise but, at this stage, there is no agreement.

"Sen. Wyden would very much like to see a bill, the sooner the better, but it appears to be a task for next year," Carol Guthrie, communications director for Wyden, said. "We don't expect any action before the end of the year."

Since the ban expired, all Internet access connections are currently subject to taxation although most state legislatures will not be back in session until mid-January or February. Even then, states will be hesitant to enact a tax with federal legislation pending. When the first three-year ban expired in 2001, the moratorium lapsed for a brief period before Congress extended it for another two years.

"What we are proposing is a two-year extension of the current law with one exception: level the playing field between the phone companies and the cable companies," Alexander said during the November floor debate. "This short term solution allows us to craft careful changes in a rapidly changing technological world."

Sen. Fritz Hollings (D-S.C.), said: "Under the present (proposed) language, the bill extends the exemption not just to the last connection to the consumer but all the way down the pipeline. That is not the intent of Congress at all. We've invaded the taxing authority of the states and that's not right."

Another Alexander ally, New Jersey Democratic Sen. Frank Lautenberg, added, "This amounts to another corporate giveaway. I would support a ban, but only a temporary one. I would not and can not support a moratorium that is permanent based on such a vague definition of what Internet access is."

Wyden says the Alexander amendment would make it easier for states to tax wireless connections and other types of Internet access never contemplated by the original 1998 ban on access taxes.

"Senator Allen and I have done everything but have a skywriter to write over the capital building, telecommunications services that are taxed today can and should be taxed in the future," Wyden stressed to his colleagues.

Wyden sponsored the original moratorium in 1998 and its extension for another two years in 2001.

Adapted from internetnews.com.

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