By Larry Jones
November 3, 2003

As U.S.MAYOR goes to press, the Internet Tax freedom Act, which bans state and local taxes on Internet access fees as well as prohibits multiple and discriminatory taxes, was set to expire on November 1. Although the House passed a permanent extension of the moratorium, the bill has been stalled in the Senate since mid July due to a controversial provision that would expand the moratorium to include traditional telecommunication taxes. Due to strong opposition from state and local governments, several Senators expressed concerns about the impact the bill could have on state and local revenues.

To block Senate floor action, Senators Lamar Alexander (TN), Maria Cantwell (WA), George Voinovich (OH), Frank Lautenberg (NJ), Kent Conrad (ND) and Mark Dayton (MN) placed a hold on the bill (Internet Tax Nondiscrimination Act, S. 150) during the last two weeks. However, the holds were dropped on October 31 after a unanimous'consent agreement was reached on a time for Senate floor debate and amendments that will be offered. It appears the bill will be debated on the Senate floor on November 6 and several amendments will be permitted, including an amendment on behalf of state and local governments that would provide for a two-year simple extension of current law. Senators Voinovich, Alexander and Ernest Hollings (SC) most likely will offer amendment on behalf of state and local governments.

The Conference and other state and local groups have been urging mayors and other elected leaders to contact their Senators and urge them to oppose S. 150 and instead support a two-year extension of current law. This will give Congress the time it needs to develop precise language that will allow the ban on state and local taxes on Internet access to continue without prohibiting taxes on traditional telecommunication services. To win, the amendment calling for a two year extension must receive 51 votes. While there is wide bipartisan support for such an extension, mayors and other elected officials must call their Senators and make sure they support the extension.

Under current law the definition of "Internet access" does not include telecommunication services. In many instances these services are taxed by state and local governments. The proposed bill would expand the definition to include telecommunication services to the extent they are used for Internet access. While the sponsors of the bill, Senators George Allen (VA) and Ron Wyden (OR), have stated it is not their intension to prohibit state and local governments from collecting taxes on traditional telecommunication services, the language is so vague it can be interpreted to mean just that. If the legislation is enacted as reported by the Senate Commerce Committee, New York City estimates it will lose $200 million, Dallas will lose an estimated $44 million and Chicago will lose an estimated $14 million from taxes on digital subscriber lines alone.