By Larry Jones
August 13, 2007

Key leaders in the House were unable to reach agreement on a draft bill to extend the Internet Tax Freedom Act (ITFA) before leaving for the August recess. Although the chair of the Subcommittee on Commercial and Administrative Law Linda Sanchez (CA), had hopes of introducing and approving a bill by August 2, disagreement over adding language pertaining to equal treatment of satellite and cable providers in the provision of multi-channel video programming caused the delay.

The disagreement stems from concerns raised by the satellite industry that some states are changing their tax laws by revoking local franchise fees imposed on the cable industry, and instead imposing a sales tax on the gross receipts paid by customers of both satellite and cable. Although the same level of taxes is imposed on both services, the satellite industry claims the net effect of these changes amount to a substantial subsidy for cable providers since they no longer have to pay franchise fees but continue to receive valuable access to the public rights-of way. The satellite industry has challenged these laws in courts in North Carolina and Kentucky, and so far they have been upheld.

The Conference is not in favor of adding language to ITFA that imposes federal restrictions on state and local governments’ ability to change their tax laws. When Congressional members return to Washington in September, the leaders are expected to resume discussions on developing a bill to extend ITFA. They will have to decide whether or not to include the language from the satellite industry. If they do, it could cause some groups to oppose the bill. Current law will expire on November 1, so Congress will have two months to enact an extension bill.

The Conference of Mayors and other state and local groups will continue to push for a clean bill similar to S. 1453, which provides for a four-year temporary extension of current law; a change in the definition of Internet access to clarify that the moratorium applies only to the service that connects a customer to the Internet and not to goods and services sold over the Internet; and an extension of the grandfather clause that protects those state and local governments that had taxes on Internet access in place when the original law passed in 1998.