[Infowarrior] - Senate OKs 7 more years of tax-free Net access, e-mail

[Richard Forno]

Senate OKs 7 more years of tax-free Net access, e-mail
Posted by Anne Broache
http://www.news.com/8301-10784_3-9805069-7.html?part=rss&subj=news&t
ag=2547-1_3-0-20

Scarcely a week before an existing ban on Internet access taxes is set to
expire, the U.S. Senate late Thursday voted to let the prohibition live on
for seven more years.

The compromise bill, which was approved by a voice vote, would prohibit
state and local governments from taxing any service that enables users to
connect to the Internet and some related services through 2014. That's three
years longer than the version passed by the House of Representatives last
week.

The bill won't go to the president's desk just yet. First, the House must
approves the Senate's changes. Congressional aides said they were hopeful
the whole process would conclude before current law's November 1 expiration
date.

States that already had Internet access taxes in place before the ban took
effect would still be allowed to keep them. They could also tax Internet
services, albeit more indirectly, if they had already enacted broad-based
laws that tax a business' gross income or receipts.

The approved version also addresses at least some of the concerns raised
earlier Thursday by Sen. Ron Wyden (D-Ore.). Citing a Congressional Research
Service memo, he said proposed changes to the scope of the ban under current
law--and contained in the House bill approved last week--could unwittingly
lead to taxes on e-mail, instant messaging and other Web services.

The Senate's bill was modified before the vote to include a section that
says states can't tax "home page electronic mail and instant messaging
(including voice--and video--capable electronic mail and instant messaging),
video clips, and personal electronic storage capacity, that are provided
independently or not packaged with Internet access."

Wyden, who first proposed the Internet tax ban in 1998, said the additional
language resolves his "immediate concerns" but that he remains "concerned
about the vast range of current and future services that are still exposed
to the potential for taxation under this legislation."

To be sure, the bill is far from a blanket ban on all Internet-related
taxation. Both the House and Senate versions explicitly say the prohibition
does not include "voice, audio or video programming" that charges consumers
a fee--such as IPTV and subscription-based Internet phone services--and
basically any other "products and services" delivered over the Internet and
not specifically exempted by the bill. (The bill also does not deal with the
separate question of sales tax on goods purchased online.)

"I will continue to work to protect all Internet services from the web of
taxation that has resulted in many telecommunications services paying tax
rates as high as alcohol and tobacco," Wyden said in a statement.

A number of Senate Republicans had been agitating for a permanent tax ban,
but state and local officials had balked at the idea because they argue they
need the freedom to revisit the need for new revenue sources as technologies
develop down the line.

Sens. Tom Carper (D-Del.) and Lamar Alexander (R-Tenn.), who preferred
another temporary extension all along, said Thursday's compromise "is a
common sense victory both for internet users and for state and local
governments" and would avoid "unfunded federal mandates on states and
cities."

Sen. John Sununu (R-N.H.), one of the most vocal proponents of a permanent
ban, and Senate Minority Leader Mitch McConnell (R-Ky.) said they would
continue to push for a permanent prohibition.

"In the meantime, the Senate has made real progress in the name of Internet
tax freedom, passing improved legislation that offers more certainty for
this national and global communication network," Sununu said in a statement
after the vote.