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House Approves Internet Tax Moratorium

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_____E-Tax Headlines_____
Senators Bargain on Internet Access Taxes (washingtonpost.com, Mar 15, 2004)
Senators Try to Break Impasse on Internet Taxes (The Washington Post, Feb 11, 2004)
It's Time Uncle Sam Taxed Techies (The Washington Post, Jan 7, 2004)
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The telecom industry has lent its considerable support to the bill to ensure that all forms of Internet access are treated equally, said AT&T spokeswoman Claudia Jones.

"This bill takes away the uncertainty that's out there now for DSL providers and makes all forms of Internet access subject to the same rules," Jones said.

According to a study released by the Congressional Budget Office (CBO) in May, ending the grandfather clause could cost those states from $80 million to $120 million annually. The CBO said changing the definition of what constitutes Internet access could also affect tax revenues, though it did not estimate the costs associated with such a change.

That revenue loss could hit Texas particularly hard. The Lone Star State falls under the grandfather clause, bringing in roughly $45 million annually in Internet access charges.

"Extending this moratorium simply solidifies special treatment for this particular communications medium," said Billy Hamilton, deputy comptroller for the state. "Our notion has always been we don't need [the moratorium] because we're talking about an industry that is no longer in its infancy but has matured."

But Rick White, president and chief executive officer of TechNet, a bipartisan lobbying group for high-tech CEOs, said many in Congress support the moratorium because they're wary of applying traditional telecommunications regulations to the Internet.

"I think Congress learned its lesson with the whole telecom regulatory experience of the past two decades, where you ended up with pricing situations that didn't respond to market forces," White said. "So there's definitely a reluctance to burden the Internet with some of the problems that we've spent years trying to extricate ourselves from on the telecom side."

The Senate Commerce Committee's version of the bill would also ban taxes on bundled voice and Internet services, though lawmakers on the panel remain at odds over exactly how to define "Internet access."

It's Not About Internet Sales Taxes

The moratorium legislation being debated in Congress does nothing to advance a plan by a coalition of states to get congressional approval to collect sales taxes on purchases made online.

Under federal law, Internet merchants must charge applicable sales taxes only if the buyer is located in the same state where the seller has a store or distribution center. But that rule captures relatively few Internet sales, and fails to address how states would enforce collection. Most states require consumers to pay taxes on items they buy online, but such laws are difficult to enforce and are usually ignored.

Nearly 40 states have joined the Streamlined Sales Tax Project in a bid to level the sales tax playing field, concerned that failing to tax all online sales would put main street stores at a disadvantage and cut into state and local revenues. The states not only need congressional approval for their plan, but they also must modify their disparate sales tax laws to comply with the national proposal.

The states initially hoped to hitch their sales tax effort to the access moratorium extension, but the coalition later decided to unhitch the Internet sales tax agreement from the moratorium to avoid confusion, according to Neal Osten, director of commerce and telecommunications for the National Conference of State Legislators.

"It's a complicated topic that when you combine them confuses everyone," Osten said in an interview in July. "The access tax moratorium gets into a whole nest of issues that outside the scope of what we want to do."

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