Internet Access Tax Ban: Temporary or Permanent?

By Roy Mark

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To ban or not to ban?

State and local governments support the moratorium on Internet connection taxes, but only on a temporary basis. The benefits of broadband deployment, they admit, offset the revenue loss to state and local governments.

But a permanent ban? Not so good, they said Thursday. Contrast that with technology executives and consumer and public policy advocates who have long contended the ban should be made permanent.

Whether the ban should be temporary or permanent is a critical question for lawmakers, as the current four-year ban expiration date of Nov. 1 approaches. Congress has renewed the ban twice since the Internet Tax Freedom Act (ITFA) originally passed in 1998.

"The National Governors Association is calling for an extension [of the moratorium]," David Quam, the NGA's director of federal relations, told an overflow lunchtime crowd of Senate and House staffers. "A temporary answer is better than a bad solution."

Added Jeff Arnold of the National Association of Counties, "No one wants to tax Internet access."

Quam and Arnold support the four-year extension proposed by Republican Senators Lamar Alexander of Tennessee and Tom Carper of Delaware. More important than the length of the extension, Quam and Arnold contended, is the bill's definition of Internet access.

"We have to be clear on the definition of access," Quam said, noting that states fear the current definition could be construed to provide tax-free Voice over IP (VoIP) and other bundled services offered by Internet service providers.

The current ban is limited to three types of taxes: Internet connections; double taxation of a product or service bought over the Internet; and discriminatory taxes that treat Internet purchases differently from other types of sales. The moratorium covers dial-up, DSL, cable modem and wireless Internet connections.

"NGA believes that the unlimited ability of providers to bundle together content and 'other services' into a single, tax-free offering represents a loophole," Quam told a House panel last month.

Alexander and Carper claim their legislation fixes that loophole.

"Our bill would ensure that consumers continue to enjoy tax-free access to the Internet, including e-mail and instant-messaging," Carper said in a statement. "In the meantime, we fix many problems with the current law so that as future services, such as cable television, migrate to the Internet, we don't completely erode the tax base of state and local governments."

The technology sector is supporting behind legislation proposed by Senators Ron Wyden (D-Ore.) and John McCain (R-Ariz.), which would make the ban permanent. Similar legislation is pending in the U.S. House.

"It would be good if we could just make it permanent," said Broderick Johnson of Bryan Cave Strategies and the DontTaxOurWeb.org. "We previously debated whether there should be a tax at all, but that debate is now over."

This article was first published on InternetNews.com. To read the full article, click here.