Far-Reaching Consequences Ahead For 'Internet Access Providers' In US Net Tax Debate

by Mike Godfrey, Tax-News.com, Washington

28 June 2001

According to a report from Red Herring, if the United States Internet Tax Nondiscrimination Act is approved, a tax loophole in the legislation would make permanent the current federal ban on the taxation of Internet access providers.

It all depends on how Congress decides to define the term 'Internet access provider': businesses that fit the description are set to profit but governors have argued that it could spell financial doom and gloom for their states as they foresee companies attempting to offer whatever services they provide with the offer 'Internet access' added to them.

Currently, the debate is centring around the sales tax moratorium, but Internet access providers, and other companies hoping to be labelled as such, believe that they have a lot to gain from the second provision in the bill which would make permanent the prohibition on state taxation of Internet access providers.

Jim Geringer, governor of Wyoming and head of the National Governors' Association Technology Task Force, declared: 'We're working to prevent a revenue crisis. The worst case is that you end up preëmpting states' authority to tax anything.'

According to the author of the report, Tim Devaney, telecommunication companies in particular are campaigning for the use of terminology in the bill which would 'either exempt them from state taxes or impose the same taxes on their competitors.' Annabelle Canning, an attorney dealing with tax policy for Verizon Wireless, stated: 'Our main concern is that when we sell the same package we should have the same treatment. We just want to make sure there's a level playing field.'

Since the language of the current legislation was written three years ago, it has become ambiguous because companies are increasingly expanding the range of their services which has confused the issue of defining an Internet access provider. The worry is that Congress will pass the new bill's permanent moratorium based on the previous bill's vague definition of Internet access provider, leaving telecommunication companies to 'seek their level playing field in court and states to find revenue amid a drastically altered business landscape,' remarked Mr Devaney.

'If Congress just extends the moratorium,' said Governor Geringer, 'it's telling the states that the federal government shall preëmpt states' authority to levy taxes. This is not a debate over who's against and who's for technology. This is a discussion of how we govern. It's that fundamental.'

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