Net-Access Tax Moratorium Advances


A bill to extend a moratorium on Internet-access taxes moved through a key House committee last Wednesday, while a Senate panel started considering similar legislation.

First enacted in 1998 and renewed for two years in 2001, the current prohibition on federal, state and local taxes on Internet service are set to expire Nov. 1. Legislation in the House and Senate would make the ban permanent.

The House Judiciary Committee approved its bill Wednesday by voice vote. It now awaits action on the House floor.

The same day, the Senate's Commerce, Science and Transportation Committee held a hearing on a similar bill, which the panel is expected to approve.

The National Cable & Telecommunications Association supports the moratorium.

Cable companies and other Internet-service providers said a failure to extend the measure would lead to a proliferation of state and local fees and taxes on Internet access.

Testifying Wednesday before the Senate panel, America Online vice chairman Joseph A. Ripp warned that without the moratorium, monthly service bills would increase by $2 to $10 per customer, and ISPs would be discouraged from deploying new services.

"While a large, national company like AOL might be able to muster the resources to comply with a panoply of tax regulations, it would come at great cost," Ripp said. "The cost of compliance would negatively impact our customers, our shareholders, and drain resources from technological and service enhancements."

Before approving its bill, the House Judiciary Committee voted to expand the ban to encompass access taxes on DSL and "wireless Web" services.

Telecommunications firms such as Sprint Corp., AT&T Corp. and the regional Bell operating companies had sought the amendment, and are now pressuring senators to add similar language to their bill.

"Some states have asserted that our service is subject to taxation, while competing cable-modem and direct-satellite Internet access are tax-exempt," Mark Beshears, Sprint's assistant vice president for state and local tax, told the Senate commerce panel.

In past sessions, the tax-moratorium bills have been bogged down in contentious debates over how to apply sales taxes to online purchases. In 2001, the moratorium lapsed briefly as lawmakers wrangled over details.

This year, the House and Senate bills avoid the sales-tax question. But Sen. John McCain (R-Ariz.), the commerce committee chairman, said he plans to address e-commerce taxation later this year.

States News Service