Congress Follows ACEC, Begins Repeal Of 3% Telephone Tax

Mike Godfrey, Tax-news.com, Washington

18 May 2000

In separate Committees yesterday, Congress
continued to act on the report of the Advisory Commission on Electronic Commerce.

The House Ways & Means Committee passed HR 3916, repealing the
three percent Federal telephone tax. HR 3916 is expected to go to the
House floor for a vote next week.

The report, sent to Congress by the Advisory Commission on Electronic
Commerce, called on Congress to abolish the tax completely in order to
relieve tax burdens on Internet connections, reduce the cost of Internet
access, and help bridge the digital divide. The Federal three percent
tax appears on each consumer's monthly telephone bill, and applies to all
local and long-distance telephone service, including the use of phone lines to
access the Internet. The tax was first levied in 1898 as a luxury tax
on the few Americans who owned telephones in order to fund the Spanish
American War.

"With the approval of this bill, the Committee has just voted to save
the taxpayers of America $5 billion each year," said Commission Chairman,
Virginia Governor Jim Gilmore, III. "This sort of tax relief is a giant
step toward cutting taxes for American consumers and bridging the gap in
the digital divide." Gilmore also noted, "Cutting the telephone tax is
the third major idea from the Commission to gain traction in Congress. The
Commissioners can take pride their work is delivering tax cuts for the
American people."

In other Congressional action today, the House Judiciary Committee heard
testimony from former Advisory Commission members Paul Harris (Delegate,
Commonwealth of Virginia), Ron Kirk (Mayor, Dallas, Texas), Grover
Norquist (President, Americans for Tax Reform), and Stan Sokul (Consultant,
Davidson & Co.) in a hearing on HR 4267. Co-sponsored by Representatives Henry
Hyde (R-IL), John Conyers (D-MI), George Gekas (R-PA), and Jerrold Nadler
(D-NY), the bi-partisan bill is known as the Internet Tax Reform and
Reduction Act of 2000.

The bill amends the 1998 Internet Tax Freedom
Act to impose a permanent moratorium on state and local taxes on Internet
access; to extend for five years the duration of the moratorium
applicable to multiple and discriminatory taxes on electronic commerce; to impose a
five-year moratorium on taxes on sales of digitized goods and products;
to encourage states to adopt a Uniform Sales and Use Tax. HR 4267 also
would define clear jurisdictional nexus rules for sales taxes on remote sales.
Each of these ideas was contained in the Commission's Report.

The Commission was created 20 months ago by the Internet Tax Freedom
Act. The Commission delivered its Report to Congress on April 12. It
includes formal Recommendations that were endorsed by two-thirds or more of the
19 senior industry, government, and public policy executives who served on
the Commission. The Report also includes Majority Policy Proposals that
were agreed to by more than a majority of the Commissioners.

Just last week, the House of Representatives voted 352 to 75 to pass HR3709, supporting
the Commission's Report by extending the moratorium for five years
prohibiting multiple or discriminatory taxes on electronic commerce, and eliminating
taxes on Internet access fees.

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