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US Congress Extends Internet Tax Moratorium

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

31 October 2007


The House of Representatives has voted to approve new legislation that will extend the moratorium on internet access taxes at state and local government level by seven years.

Tuesday's unanimous House vote followed Senate approval of the measure last week, and opens the way for President Bush to sign the bill into law, before the current moratorium on internet access taxes expires on November 1. The legislation is largely unchanged from the previous moratorium enacted in 2004, and continues with grandfathering provisions for nine states that taxed internet access when the first moratorium was enacted in 1998 to encourage the growth of online commerce. The legislation does not, however, deal with the more complex issue of sales taxes on internet purchases, which is being examined in separate legislation.

The vote was welcomed by Democratic Congresswoman Anna G. Eshoo, whose Congressional district includes much of Silicon Valley, and who has been a leading figure in the movement to extend the tax ban, although she initially opposed a temporary extension in favor of a permanent ban.

"No one should have to pay a tax just to access the Internet," explained Eshoo. "Extending the moratorium for seven years is an important step forward to bolster innovation and enhance broadband policy in our country."

In January, Eshoo, a Member of the Energy and Commerce Subcommittee on Telecommunications and the Internet, introduced the Permanent Internet Tax Freedom Act, to permanently ban Internet access taxes and discriminatory taxes on Internet commerce. The bill attracted 240 bipartisan cosponsors but was not considered by the full House.

Instead, the House voted on October 16th to approve the Internet Tax Freedom Act Amendments Act of 2007. It initially extended the moratorium for only four years and included a loophole that would permit new taxes on e-mail and other Web-based services. Eshoo was one of only two Members who voted against the bill on October 16th.

"I opposed the bill because it included only a four-year extension of the moratorium and language that could have opened up the possibility of new taxes on Internet services like e-mail and music downloading," Eshoo said. "I knew we could do better and today we did."

Senate amendments to the bill extended the moratorium to seven years and closed the tax loophole for Web-based services.

Senate Republican Leader Mitch McConnell also welcomed the House vote, but shared Eshoo's conviction that the moratorium must eventually be made permanent.

By passing the Senate’s seven-year tax relief, the House agreed that the four-year ban was insufficient," he commented in a statement released after the House vote. "But our job is not finished – we must continue to fight to ban taxes on Internet access--permanently.”


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