Senate passes ban for Internet-access taxes

U.S. Senators yesterday voted overwhelmingly to extend a moratorium on taxing Internet services for four years while banning new taxes on Internet access technologies and prohibiting government entities that tax DSL from doing so after November 1, 2005.

The 93-3 vote belied the difficulty lawmakers had in passing the bill, which was deadlocked in the Senate for months after the House of Representatives quickly extended the moratorium in a separate bill last fall. Although it is possible the houses of Congress will attempt to conference on the matter, many analysts believe it is more likely that the House simply will approve the Senate version of the bill.

Originally proposed as a permanent moratorium on taxing Internet services sponsored by Sen. George Allen (R-Va.), the bill passed after being amended by Sen. John McCain (R-Ariz.). The McCain amendment excluded voice-over-IP technology from the discussion, limited the moratorium to four years and allowed government entities currently taxing DSL to continue to do so for two years.

“It is extremely important to telecom, because state and local governments are driving a Mack truck through a loophole in the law,” according to Mark Mullet, Verizon Communications’ vice president of government affairs.

Although “no one wants to vote on the record that they’re in favor of taxing the Internet,” Mullet said many state and local governments have begun collecting taxes on DSL, because it is considered a telecommunications service. As a result, taxes could be collected on DSL administratively, without input from elected officials—something that did not occur with cable-modem offerings, which are deemed an information service.

“McCain’s amendment is the only option that gives us parity [after the two-year grandfather period],” Mullet said.

In addition to securing taxation parity for DSL providers, the bill also prohibits government entities from taxing wireless Internet services, which governments were “sending signals” that they were preparing to do if the previous moratorium rules had been extended.

With the passage of the McCain amendment, Mullet said it is more likely that the Senate will consider a bill sponsored by Sen. John Sununu (R-N.H.) that would prohibit state and local governments from taxing VoIP applications.

United States Telecom Association President and CEO Walter McCormick expressed support for the action.

“The Senate’s strong vote on the Internet tax moratorium is a good step for the American people and will help to end unnecessary, burdensome taxes that limit consumer choice by forcing them to pay more for one high-speed Internet service than another,” McCormick said in a prepared statement.