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Senate Action Uncertain on Legislation Reinstating Moratorium on Internet Access Taxes

By Larry Jones
April 12, 2004

Senate action on a permanent Internet tax moratorium bill (S. 150), which is strongly opposed by state and local governments, is still uncertain. The bill has been stalled since last year but Senate Majority Leader Bill Frist (TN) stated recently he would like to move an Internet Tax bill the week of April 26. However, he has not stated whether he will schedule action on S. 150, a bill sponsored by Senators George Allen (VA) and Ron Wyden (OR) that would permanently ban taxes on Internet access and expand the definition of Internet access in a manner that would exempt telecommunication services from state and local taxes. If enacted it is estimated this legislation will cause state and local governments to lose $11 billion in annual revenues.

In an alert sent out last month, Conference Executive Director Tom Cochran urged mayors to contact their Senators and urge them to oppose S. 150 and support an alternative proposal sponsored by Senators Lamar Alexander (TN) and Thomas Carper (DE), the Internet Tax Ban Extension Act, S 2084. This legislation would extend the moratorium for two years and it would apply equitably to all forms of Internet access, including access provided over digital subscriber lines (DSL). However, state and local governments with current taxes on Internet access fees would be allowed to continue such taxes.

Although Senators Alexander and Allen have met on numerous occasion in the last few months to discuss a compromise, very little progress has been made. While no agreement has been reached, a Senate aide said Senators have discussed a four-year extension of the moratorium but there has been no movement on the definition of Internet access. Senator Allen still insist on expanding the definition in a manner that would exempt certain telecommunication services from state and local taxes and Senator Alexander continues to oppose these changes.

A 1998 law imposing a temporary moratorium on Internet access fees, as well as prohibiting multiple and discriminatory taxes, was allowed to expired last November. Disagreement over the length of the moratorium and the definition of Internet access prevented the Senate from reaching agreement on an extension bill. The House passed its version of the permanent moratorium, H.R. 49 last summer, with the support of the Administration. But the measure ran into strong opposition in the Senate when mayors, governors and other state and local leaders explained the impact that S. 150 would have on state and local governments. They expressed opposition to a permanent law exempting certain telecommunication services from state and local taxes at a time when tremendous change is occurring. They also expressed concerns about the potential loss billions of dollars in annual revenues.