Senators Tussle Over Net Tax Ban as Deadline Looms

With the current ban on Internet access taxes due to expire on Nov. 1, tensions rose last week when a move to extend the ban stalled in the Senate.

The Internet tax ban has been in place since 1998, having last been renewed in 2004 for another three years. On Thursday, the Senate Commerce Committee was scheduled to vote on S. 1453, the ITFA (Internet Tax Freedom Act) Extension Act of 2007, which would extend the Internet tax ban by another four years, but Commerce Committee Chairman Daniel K. Inouye (D-Hawaii) canceled the vote at the last minute because of dissent within the committee.

“I am disappointed that the Commerce Committee was unable to act on legislation to extend the Internet tax moratorium at today’s markup,” Sen. Inouye said. “But after discussions with my colleagues, I believe that further negotiations are warranted. It is my hope that a reasonable compromise can be reached and that the committee will be able to take swift action in the future.”

Dueling Proposals

Two main proposals have been made to extend the ban on Internet access taxes. The ITFA Extension Act of 2007, sponsored by Sen. Tom Carper (D-Del.) and Sen. Lamar Alexander (R-Tenn.), is one, with its extension of four years. That proposal, which includes a grandfather clause that would allow states that already had a tax enacted in 1998 to continue imposing Internet taxes, has been backed by organizations including the National Governors Association (NGA).

“S. 1453 calls for a reasonable extension that closes tax loopholes, promotes Internet usage and protects states,” the NGA said. “This bill alters the definition of tax-free Internet accesses to ensure a consumer’s e-mail and instant messaging remains tax free; closes a loophole that puts state revenues at risk; and continues the original grandfather clause to protect existing revenue.

“Taking into consideration that the Internet is ever-changing, this bill also extends the law for four years to ensure that Congress revisit the moratorium to review any unintended consequences for consumers, industry or the states,” the NGA added.

A Permanent Ban

A competing proposal, however, backed by Sen. John Sununu (R-N.H.) and Sen. John McCain (R-Ariz.), would make the ban permanent. That proposal has received support from a variety of Internet service providers (ISPs) as well as organizations including Don’t Tax Our Web.

“Keeping Internet access affordable is vitally important to all American consumers,” McCain said. “If Americans want to know what their Internet access bill will look like if the tax moratorium expires, all they need to do is look at a phone bill. Taxes and government fees add as much as 20 percent to Americans’ telephone and cell phone bills, and we cannot allow that happen to the Internet — likely the most popular invention since the light bulb.”

Regarding the failed vote last week, Sununu expressed sharp disappointment.

“The Democratic leadership in the Senate appears uninterested in protecting Internet users from higher taxes,” Sununu said. “Time is running out as we approach the Nov. 1 deadline, and today’s markup provided the right opportunity to pass a permanent ban on Internet access taxes. We introduced a bill to permanently ban Internet access taxes back in January. I just don’t understand the continued delay in action. The clock continues to tick, placing Internet tax freedom in real jeopardy.

“The Internet is an essential national and global communication network that deserves permanent and immediate protection from access taxes,” Sununu continued. “Taxing the information superhighway is short-sighted policy that will discourage innovation, slow broadband deployment, and raise prices for consumers.”

An Open Door

A compromise proposal has been suggested to extend the proposal to six years, but nothing official has yet made it onto the table, Broderick Johnson, executive director for Don’t Tax Our Web, told TechNewsWorld.

“Our organization continues to urge Congress to act, and we strongly support a permanent ban,” Johnson said.

While advocates of the four-year extension have expressed fears about enacting anything permanent, “we don’t think they’ve made a strong persuasive argument for why a permanent extension would somehow prevent changes from being made in the future,” Johnson added. “Permanent laws get amended all the time.”

Failing to enact any kind of extension, however, would lead to a variety of undesirable consequences, he said. “Some states would immediately begin taxing the Internet at all levels; others would be free to start taxing Internet access under state laws,” he explained. Perhaps even worse, “states would be in a position to adopt their own definitions of Internet access, which could lead to a lot of inconsistency and ambiguity,” he said.

‘Is Now the Time?’

“The problem is when Congress gets caught between two sides like this and debates incessantly,” Rob Enderle, president and principal analyst with the Enderle Group, told TechNewsWorld. “Deadlines roll by, and suddenly we’ve got taxes.”

Such taxes may be inevitable in the long run; what remains to be decided is when they should be implemented, telecommunications industry analyst Jeff Kagan added.

“The question once again is when, if ever, will we start charging taxes for this the way we do in every other aspect of life?” Kagan told TechNewsWorld. “Everyone hopes it will never happen, but it probably will — the question is, is now the time?”