States that collect Internet taxes have up to three years to end their collections. The changes made yesterday gave Wisconsin and Texas more time to end their tax regimes, satisfying some House members from those states, including Judiciary Committee Chairman F. James Sensenbrenner Jr. (R-Wis.).
The revisions also make clear that any service that results in a telephone call, regardless of the technology behind it, can continue to be taxed.
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Some states were concerned that phone companies might try to argue that their regular phone services would be exempt from taxes because the calls spend part of their trip on networks that increasingly use the Internet.
Similarly, calls made via a technology known as voice-over-Internet protocol (VoIP), which originate on high-speed Internet networks, can be taxed.
Among other things, state officials argued that they rely on telecommunications taxes to help fund consumer-protection enforcement and to ensure that the poor have access to basic phone service.
By some estimates, states could have lost as much as $10 billion a year if all telephone service were exempt from taxes.
"More than a year ago, the Senate was prepared to pass legislation that would have done irrevocable harm to state and local governments," Carper, a former governor, said in a statement. "But the compromise we worked out will do minimal harm to states, while also protecting consumers from taxes on their monthly Internet bills."
Alexander, also a former governor, said the compromise balanced states' rights with the need to foster free markets.
Sen. George Allen (R-Va.), who along with Sen. Ron Wyden (D-Ore.) had pushed for a permanent and more extensive ban on taxes, also said he is pleased by the compromise.
"Today, we have made sure that the avaricious tax commissars from every county, city and state in America cannot continue conniving new ways to tax the Internet and the people who use it," he said in a statement.
Wyden said the result ensures a brighter, more secure future for the Internet and Web commerce.