Internet access tax ban stalls

WASHINGTON (10/31/2003) - A move to establish a permanent moratorium on Internet access taxes is being threatened by several senators who want further debate, arguing that the ban could cost states billions of dollars at a time when they face serious fiscal crises.

The current temporary tax ban, which expires this Saturday, was established for a three-year period in 1998 and extended for two more years in 2001.

The House has already passed its bill to make the Internet Access tax ban permanent. Observers had widely expected the bill to pass in the Senate, despite some senators' concerns. Chief among these are provisions adding a ban on state and local telecommunications taxes to the moratorium, which some senators say is unreasonably costly to states. Now, the bill has drawn fierce opposition from some senators.

Senators Jockey

"A vote for legislation preventing states from taxing Internet access is a vote for an unfunded federal mandate," says Senator Lamar Alexander (R-Tennessee).

He and other senators had placed a legislative hold on the bill, barring it from reaching the floor. Thursday, they removed that hold when Senate leaders agreed to let them speak on the floor against the moratorium.

One of the lawmakers involved, Senator George Voinovich (R-Ohio), says that he doesn't oppose the bill per se, but worries that it fails to define clearly what a telecommunication service is.

Despite the resistance, sponsors are guardedly optimistic that the bill will pass the Senate next week, albeit with some amendments.

"At the end of the day, Senator Allen is confident that the bill banning Internet access taxes and multiple and discriminatory taxes will pass," says a spokesperson for Senator George Allen (R-Virgina), a cosponsor.

Though the ban expires Saturday, the absence of a federally mandated extension "doesn't mean a darn thing for consumers," says David Quan of the National Governors Association. Quan notes that consumers will not have to pay taxes on their Internet access services during the period immediately following expiration of the original ban.

The bill does not prohibit collection of sales taxes on items bought in Internet transactions.

Caught in Crunch

Though most senators are thought to favor of the bill, the busy Senate schedule has given opponents an unexpected advantage. With Medicare, energy, and some appropriations bills still outstanding, Senate leadership is likely to be more willing to compromise on some points of legislation to avert vote-stalling tactics such as filibusters.

"The votes are there to pass a clean bill," says Bruce Hahn of the Cellular Telecommunications & Internet Association, a high-tech consortium representing 16,000 companies. "The issue is we have a crowded schedule and (opponents) have a bit of leverage."

Senator John McCain (R-Arizona), who supports the ban, is encouraging the senate to act by urging greater clarity in distinguishing telecommunications services from Internet services. Under current law, local telecommunications services are subject to state taxes. The Internet, which is considered interstate commerce, is exempt from state jurisdiction.

The bill is scheduled to reach the Senate floor by next Thursday, though the Senate may take action on it as early as next Tuesday.

Chang writes for the Medill News Service.

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