The U.S. Conference of Mayors


WHEREAS, the Internet Tax Freedom Act was originally enacted in 1998 to encourage the growth of the Internet and electronic commerce by imposing a temporary moratorium on new taxes on Internet access fees and on multiple and discriminatory taxes on the Internet; and

WHEREAS, a temporary moratorium was imposed to allow the Internet, telecommunications technology and electronic commerce the opportunity to develop, mature and establish trends before considering how state and local taxes should be applied; and

WHEREAS, the original law also provided protections for state and local governments in three critical areas: (1) it only applied to new taxes and not existing taxes on Internet access (state and local taxes on Internet access fees in existence in 1998 were protected by a grandfather clause), (2) the definition of "Internet access" excluded telecommunications services, a significant revenue source for state and local governments, and (3) the moratorium was made temporary so Congress could monitor the International electronic commerce, and make adjustments at the end of the moratorium to address rapidly developing technologies and markets; and

WHEREAS, since the passage of the original law, the moratorium has been temporarily extended two times-a 3-year simple extension was approved in 2000, and in 2004 legislation was introduced to make the law permanent and eliminate the grandfather clause; and

WHEREAS, the Conference and other state and local groups who opposed a permanent extension were successful in convincing Congress to pass another 3-year temporary extension, to retain the grandfather clause and include language clarifying that the moratorium does not apply to telephone services provided over the Internet or Voice Over Internet Protocol (VOIP) services; and

WHEREAS, the current legislation is scheduled to expire on November 1, 2007 and once again, bills have been introduced in the House and Senate to make the moratorium permanent and eliminate the grandfather clause and other protections for state and local governments; and

WHEREAS, the current definition, which imposes a moratorium on taxes on Internet access, also poses a problem in that the way it is worded implies that current taxable services that are bundled with Internet access must be exempt from state and local taxes since the definition states that Internet access "may also include access to proprietary content, information, and other services as part of a package of services offered to users;" and

WHEREAS, during the past decade, the world has witnessed a remarkable transformation in the field of telecommunications with many telecommunications companies migrating to the Internet and offering customer services that state and local governments have traditionally taxed such as music, movies, games, newspapers, books, VOIP, Internet-Protocol Television (IPTV), all of which could be bundled with Internet access; and

WHEREAS, the rapid pace of innovation in the Internet and telecommunications industries makes it difficult to define these complex and ever-changing services; and

WHEREAS, Senator Thomas Carper (DE) and Senator Lamar Alexander (TN) have introduced a bipartisan alternative proposal on behalf of the state and local governments that would temporarily extend the ITFA for 4-years, retain the grandfather protections, and clarify that the definition of Internet access to make it clear that Internet access does not include taxable services,

NOW, THEREFORE, BE IT RESOLVED that The United States Conference of Mayors urges all members of Congress to cosponsor and support the enactment of the Carper-Alexander 4-year extension of the Internet Tax Freedom Act in the Senate and similar legislation in the House; and

BE IT FURTHER RESOLVED that The United States Conference of Mayors urges all members of Congress to oppose legislation that would make the existing moratorium on Internet access fees permanent as well as eliminate the grandfather clause and other protections for state and local governments.

2007 The U.S. Conference of Mayors
Tom Cochran, Executive Director
1620 Eye Street, NW, Washington, DC 20006
Tel. 202.293.7330 ~ Fax 202.293.2352