Senate Passes 7-Year Extension to Internet Tax Ban

With less than a week before a ban lapses on Internet taxation, the U.S. Senate last night approved a seven-year extension.

The moratorium, originally passed in 1998 and due to expire Nov. 1, bans state and local governments from levying taxes on Internet services.

“The Senate recognized the window of time to prevent imminent tax increases is closing and took action on an issue that’s a political slam dunk,” said Dorothy Coleman, vice president for tax and domestic economic policy at the National Association of Manufacturers (NAM).

The bill, called the Internet Tax Freedom Act Amendments Act of 2007, now must be reconciled with the House version of the extension before the deadline. The House’s version of the bill, approved Oct. 16, adds only another four years to the life of the tax ban.

Additionally, a Congressional lawyer warned that the House bill’s more restrictive language could mean that that the ban may leave services like e-mail open to taxation, a fact that may pose difficulties while legislators work to reconcile the two versions.

There’s wide support for extending the ban within Congress: The House version passed by a margin of 405 to two. However, members of the House and Senate Republican leadership, along with lobbyists from Internet service providers, retailers and trade associations like NAM, largely abandoned a further effort to make the ban permanent because of fears that debate would extend past the Nov. 1 deadline.

“This agreement is a common-sense victory both for Internet users and for state and local governments,” Senators Tom Carper (D-Del.) and Lamar Alexander (R-Tenn.) said in a joint official statement. “It continues the moratorium on Internet taxation, avoids unfunded federal mandates on states and cities, updates the definition of Internet access, and allows Congress to revisit the issue after seven years.”

Still, the White House took Congress to task over its slowness in acting. “They have yet to make the Internet tax moratorium permanent, or even extend it — even though this moratorium is set to expire in just a few days,” President Bush said in a statement. “The House and Senate have both passed temporary extensions but have not agreed on a final bill. I urge Congress to keep the Internet tax-free — and to get a bill to my desk that I can sign.”

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