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Politicians weigh renewal of
Net access tax ban
Anne Broache
CNet
Thursday May 24, 2007
WASHINGTON--With only months left on a moratorium restricting state
governments from taxing Internet access, the U.S. House of Representatives
on Tuesday began a debate over whether the ban should be made permanent
or allowed to lapse.
At issue is the scheduled expiration on November 1 of a law, initially
enacted in 1998, that says local governments generally cannot tax
Internet access, including DSL (digital subscriber line), cable
modem and BlackBerry-type wireless transmission services. The law
also prohibits governments from taxing items sold online in a different
manner than those sold at brick-and-mortar stores, but it does not
deal with sales taxes on online shopping.
That's the way it should remain, some politicians said at a brief
hearing here convened by a House of Representatives panel on commercial
and administrative law.
"If we could liken the Internet to a mall, a place where you
can go in and purchase goods and services, and also liken it to
a library, a place where you can go and pull a book, pull a resource,
and obtain some information, why would we tax a person upon entering
a mall or why would we tax a person upon entering the library?"
asked Rep. Hank Johnson, a Democrat from Georgia.
Industries that provide Internet access services have long backed
making the ban permanent, and they already enjoy support from some
members of Congress. In the House, Rep. Anna Eshoo, a California
Democrat, has introduced such a measure, and senators have made
similar moves.
But previous attempts at renewing the ban for more than two to
four years have failed, in part because of resistance from state
and local government lobby groups. State government representatives
caution against making the moratorium permanent, saying it would
deprive states indefinitely of vital revenue sources and that its
original purpose--boosting the nascent Internet to commercial viability--has
essentially been accomplished.
A 'slippery slope'
"If a moratorium is made permanent, there is a slippery slope
where other industries will seek their own preemptions of state
laws," said David Quam, director of federal relations for the
National Governors Association.
The NGA supports the idea of extending the ban in a limited sense
and for a defined time period, he added. He said reports by government
auditors and the University of Tennessee have shown no statistical
correlation between levels of broadband penetration and the existence
of Internet access taxes.
Rep. Jim Jordan, an Ohio Republican and one of 66 House members
who co-sponsored the permanent ban proposal, suggested he wasn't
swayed by that argument. "Taxes always impact everything else
in our economy," he said. "I would assume they've had
a major impact in this area as well."
As a rule, economists dislike taxes that could discourage investment,
but taxes that could hinder build-out of the Internet are especially
problematic, argued Scott Mackey, an economist and partner at the
law firm Kimbell Sherman Ellis. He spoke on behalf of a coalition
of Internet service providers, "backbone" providers and
application and content companies that support a permanent extension
of the tax ban.
"A permanent moratorium will send a strong, pro-investment
signal to those entrepreneurs that are looking to improve communications
and commerce over the Internet," he told the politicians.
A U.S. Senate committee is scheduled to weigh the issue at its
own hearing scheduled for Wednesday.
A separate issue on one politician's mind was what to do about
the collection of sales taxes on the Internet. State governments
have long griped that they are losing revenue to booming e-commerce
businesses that aren't required to collect taxes from customers
in states where the businesses don't have a physical presence. Rep.
Bill Delahunt, a Democrat from Massachusetts, said he was planning
to try again at enacting a bill designed to address those concerns.
As for the Net tax ban, he said, "my own position is we ought
to have a temporary moratorium until we finally resolve the issue
of how the states are going to support public services with an eroding
tax base predicated on the growth of e-commerce."
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