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Think Tank Urges Congress To Rethink Internet Tax Moratorium

by Leroy Baker, Tax-News.com, New York

22 October 2003


A Washington-based think tank is urging Congress not to make the internet access tax ban permanent, claiming the decision would deprive state coffers of millions of dollars in revenue whilst creating an unfair tax advantage for those who can afford high speed internet access.

Last month, the House of Representatives passed a bill that will make the moratorium on internet access tax permanent. This moratorium was originally created for a three year period by the Internet Tax Freedom Act of 1998, and was extended for a further two years in 2001 with the current ban due to expire on November 1. However, the momentum in Congress would appear to be swinging firmly in favour of a permanent ban, and the Senate could vote on similar legislation some time this week.

Opponents of the ban, such as the Center on Budget and Policy Priorities argue that the House bill has been expanded to cover the provision of high speed DSL (Digital Subscriber Line) services. Consequently, claims the CPBB, this will force legislation to be repealed in 27 states which tax DSL services, thus depriving them of up to $70 million in annual revenues. Furthermore, the bill will require nine states to scrap taxes that had been “grandfathered” under the previous ban which the CPBB claims could drain a further $80 million to $120 million per year from state coffers.

The CPBB also points out that the more expensive DSL service allows customers to use both telephone and internet services simultaneously through one telephone line, giving them a tax advantage over those who need a second conventional phone line for internet access and who will have to pay local and state taxes as a result.

"The ban on state and local taxation of telecommunications services used to provide Internet access would effectively eliminate billions of dollars worth of taxes on voice telephone service as the provision of that service is migrated to the Internet -- a process that is well underway," states the CPBB in a report. "Within a decade there is likely to be no administrable distinction between 'Internet access' and voice telecommunication for many users who will use their high-speed Internet connections to make phone calls as well.”

Backers of the bill meanwhile, contend that the taxable status of internet-based phone calls or other online activities will remain unaffected.

"States and localities have said for years and years since the inception of this ban that Western Civilization would end at its passage, but five years of solid math and evidence show that this law works for the American people," said Carol Guthrie spokeswoman for Oregon Democratic Sen. Ron Wyden, a major advocate of the bill.


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