Congress is expected to approve a $821 billion omnibus spending package when it returns from its Thanksgiving break, but the massive appropriations package apparently won't include any deal to extend a lapsed moratorium on Internet taxes.
For the past week, backers of the ban had pressed Congressional leaders to include an extension of the ban in the omnibus bill, which would make the Internet Tax Freedom Act permanent.
The law generally prohibits state and local governments from imposing multiple or discriminatory taxes on electronic commerce, and from levying taxes on Internet-access services.
The five-year-old ban lapsed Nov. 1.
A bill introduced by Sen. George Allen (R-Va.) that would make the ban permanent was approved by the Commerce Committee three months ago, but has yet to come to the Senate floor for a vote. Two months ago, the House approved a bill that would prohibit the taxes on a permanent basis.
State and local government advocates prefer a bill authored by Sens. Lamar Alexander (R-Tenn.) and Tom Carper (D-Del.) that would extend the ban for two years.
During that time, lawmakers would have time to narrow the current definition of Internet access to exclude telecommunications services that connect a consumer to an Internet-access provider.
The stricter definition aims to minimize future state and local tax losses.
Both Republican and Democratic members of the National Governors Association have been pushing their representatives in Washington to adopt the short-term ban.
"The governors continue to support efforts to extend the Internet Tax Freedom Act (ITFA) in a way that will benefit consumers, aid industry, and preserve the sovereignty of state and local governments," said Arkansas Gov. Mike Huckabee, a Republican.
"The amendment introduced by Alexander and Carper is a true compromise and should be supported by the members of Congress who, like the governors, wish to support the growth of the Internet marketplace," said Pennsylvania Gov. Ed Rendell, a Democrat. "The amendment would create parity between Internet access technologies without unduly burdening state and local governments."
Donald Borut, executive director of the National League of Cities, called the permanent ban "a very real threat to traditional municipal taxing authority … This local authority must be preserved to ensure that essential municipal services can be continued. Local budgets are already strained by the economy and by federal and state budget cutbacks."
But other taxpayer watchdog groups and state lawmaker groups see the ban as necessary for the growth of business on the Internet.
"This could be a watershed event," said Duane Parde, executive director of American Legislative Exchange Council, a national organization of state legislators. "Taxing Internet access will be destructive to interstate commerce and economic growth."
"Millions of American Internet users are waiting for the U.S. Senate to make permanent the protection from predatory online taxes that they deserve," said Paul Gessing, director of government affairs for the National Taxpayers Union. "Internet use is already taxed through the burdens that states and localities impose on phone and cable bills.
"Allowing big government to take a second crack at taxpayers, through Internet access taxes or special online sales taxes, literally amounts to double jeopardy."
Cable operators provide about 15 million subscribers with high-speed Internet access service, according to the National Cable & Telecommunications Association.
Local governments were allowed to collect up to 5% of cable Internet access revenue until March 2002 when the Federal Communications Commission declared that cable-modem service was an interstate information service that cities couldn't tax.
States News Service, with contributions from Ted Hearn.