By Larry Jones
November 17, 2003

A proposal to reinstate and make permanent a law banning state and local taxes on Internet access fees, multiple and discriminatory taxes was pulled from the Senate floor on November 7. This action came after Senators failed to reach agreement on the length of the moratorium and a controversial provision changing the definition of Internet access.

First enacted in 1998, a temporary law banning taxes on Internet access expired on November 1. Although there is a huge disagreement between Senators who support and oppose the bill, some believe it is still possible for members to reach a deal on an alternative that can be enacted before Congress adjourns on November 21. While there doesn't appear to be enough support to pass a permanent ban, many believe a two to five-year temporary extension of the law with a provision addressing how the ban on taxes will apply to all technologies used to provide Internet access could be enacted.

The key sponsors of the proposal (S.150), Senators George Allen (VA) and Ron Wyden (OR) would like to make the law permanent. They would also like to change the definition of Internet access to exempt digital subscriber lines (DSL), as well as all other technologies used to provide customers access to the Internet, from state and local taxes. But on behalf of state and local governments, Senators Lamar Alexander (TN), Thomas Carper (DE), George Voinovich (OH) and Byron Dorgan (ND) oppose the proposal because a lot of questions have been raised about how it will affect state and local telecommunications revenue sources.

State and local officials believe a controversial provision calling for a change in the definition of Internet access will prevent them from collecting taxes on traditional telecommunication services. Although the proponents of the bill claim the bill is not intended to prevent state and local governments from collecting such taxes, legal experts claim it could cause them to lose billions of dollars in telecommunication taxes.

Instead of a permanent bill, Senators Alexander and Carper are offering an alternative proposal that will extend the current ban for two additional years and allow state and local governments with taxes on DSL Internet access to continue to collect them. The proposal will not allow any new taxes on DSL and after two years all taxes on DSL and other technologies used to provide Internet access would be phased out. Senators Alexander and Carper have been effective in making the point that the proposal raises too many questions to be made permanent and that Congress should take the time to carefully consider the financial impact it will have on state and local budgets before enacting a permanent law..