Net Tax Movement Still Alive

U.S. senators battle a permanent ban on taxing Internet access.

The federally mandated moratorium on taxing Internet access expires at the end of the week, and while most federal lawmakers favor making the ban permanent, a small group of U.S. senators last week held up the initiative, bringing the potential for new Internet taxes down to the wire.

Most members of Congress, wishing to prevent the Internet from becoming a cash cow for floundering state budgets, have long favored precluding new taxes on ISPs. The House passed legislation this fall banning Internet access taxes permanently, and the Senate committee that oversees commerce approved a permanent ban in July.

But several senators rallied last week to delay the measure. Likening the ban to "the worst kind of unfunded mandate," Sen. Lamar Alexander, R-Tenn., asked his colleagues to let it die a natural death.

"This is none of Congress business," Alexander said on the Senate floor. "It is a state and local responsibility to decide how to pay the bill to fund state parks, local schools and roads, prisons, and colleges."

Congress has temporarily extended the access tax moratorium twice, but this year pressure from budget-constrained states is stronger than ever. Alexander, who voted for the original moratorium, said, "Now [the Internet] is up and going, and it ought to be out there on its own with every other commercial activity."

Aides to the bans proponents said the hold spurred a flurry of last-minute negotiations. Modifying the legislation to extend the ban, rather than making it permanent, was an option the bills advocates did not want to take, they said.

Industry officials, fearing that ISPs could be inundated with an array of new taxes from state and local authorities if the hold on the bill prevails, were dismayed by the turn of events.

"It seems [Alexander] would support even an e-mail tax. Its the most bizarre thing in the world," said Bartlett Cleland, a vice president with the Information Technology Association of America, in Washington. "Id have to attribute it to scare tactics by the National Governors Association."

States have been lobbying heavily against the legislation, arguing that it could prevent them from collecting taxes on any telecommunications services once those services are IP-based. The Congressional Budget Office estimated that a permanent access ban would cost states between $80 million and $120 million a year.

"This is chump change when you set it alongside state budgets," Cleland said. "With these holds, I think these guys are stopping democracy."

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