Calif. Internet-Tax Moratorium Nears Passage

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A bill that will bar local jurisdictions from applying
"bit," "bandwidth," or other taxes on Internet services appears headed
for passage in California.

The bill, proposed by state Assemblyman Ted Lempert (D-San
Carlos), has passed out of the state's House of Representatives and into its Senate.
Although Congress is mulling the tax status of Internet provision and services, Lempert
said a state moratorium is necessary to prevent "multiple, confusing and burdensome
taxation" on Internet services until judgment is rendered by the federal government.
Local taxes could curb development and harm the state's technology growth, according
to the bill.

The assemblyman initially sought a 10-year moratorium, but
that term, plus what was considered overly broad language on franchise fees, brought howls
of protest from the California League of Cities and other local groups. Cable operators
have an informal agreement to pay franchise fees on Internet-service income, pending any
ruling by federal authorities, according to Dennis Mangers, vice president of government
affairs for the California Cable Television Association. But local regulators were fearful
that the franchise-fee terms in the California bill would jeopardize payments.

Some Silicon Valley companies, including Apple Computer
Inc. and National Semiconductor Corp., met with their city regulators and drafted some
compromise language, much of which was incorporated into the bill, according to Brian
Moura, assistant city manager of San Carlos.

The bill, as amended, will end franchise fees on Internet
services if the Federal Communications Commission or a court case changes fee policy. Or
franchise fees can be waived with a mutual agreement between the regulator and the
operator.

Parties that recorded opposition to the bill are now
neutral. If the state Senate approves the bill this month, it would become law as soon as
it is signed by the governor, and the moratorium against taxes would last five years.

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