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Fight Over Internet Access Taxes to Enter Round Two

Compromise or Stalemate

Once the Senate reconvenes in January, it's likely that Commerce Committee Chairman John McCain (R-Ariz.) and the committee's top Democrat, Ernest "Fritz" Hollings (D-S.C.), will frame the debate. Both senators said they would consider altering the bill somehow in an effort to broker a compromise.

"Toward the end of this year, more and more senators started looking at this bill and asking the tough questions about the potential consequences of a lack of clarity in this legislation and how it needed more work. That will frame the debate going into next year. If we just pick up where we left off, we're going to have the same problems reaching a compromise," said David Quam, director of state-federal relations for the National Governors Association.

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_____E-Tax Headlines_____
Moratorium on Web Tax Advances (The Washington Post, Nov 18, 2004)
Congress Poised to Vote on Internet Taxes (washingtonpost.com, Nov 17, 2004)
Senate Backs Internet Tax Ban Extension (The Washington Post, Apr 30, 2004)
More Coverage

Right now, there is no compromise. Sens. Alexander, Tom Carper (D-Del.) and other opponents of the moratorium legislation have offered a proposal that would eliminate access taxes on consumers, but for the most part would leave business-to-business sales of Internet access service taxable.

Mike Waldron, a spokesman for Sen. George Allen (R-Va.), called that plan unworkable, saying telecom providers would simply be forced to pass the tax on to consumers in the form of price increases. Waldron said Allen plans to get a vote on his bill next year through any procedural tactics available.

"Sen. Allen has negotiated in good faith for many months, only to have the goalposts moved every time it seemed a resolution had been reached," Waldron said. "The senator is going to stick to his guns and move forward as quickly as possible with a vote next session."

Fearing a Tax Rush

In the absence of a final congressional deal, technology lobbyists and other anti-tax foes fear that thousands of local and state governments will seize on the moratorium's recent expiration and try to quickly pass ordinances to "tax the Internet."

"The real threat comes from the 7,500 taxing jurisdictions that can do all this monkey business under the radar screen," warned Bartlett Cleland, associate general counsel for the Information Technology Association of America.

So far, however, state tax officials say they are disinclined to take advantage of the ban's expiration for fear that Congress will negotiate a quick fix.

"I think most [states] probably understand that if they did try and impose taxes on Internet access when Congress hadn't finally dealt with the issue they'd be inviting Washington to enact laws that would be stricter and more intrusive than the states would otherwise get," said Harley Duncan, executive director of the Federation of Tax Administrators.

Linda Francis, director of the Montana Department of Revenue, said her state has no immediate plans to tax Internet access after being told that if Congress does extend the access tax ban next year, it will likely be retroactive to Nov. 1.

"Rather than go out there and try to get people to start making payments on access that we may have to refund anyway, we decided to wait and see what Congress ultimately does on this," said Francis.

"There is no discussion to do so at the moment, but we are taking a wait-and-see approach to see if Congress reinstalls the moratorium," said Danny Brazell, spokesman for the South Carolina Department of Revenue.

The National Conference of State Legislatures said it is not aware of any states that have legislation pending to tax Internet access, said Neal Osten, the group's director of telecommunications and commerce.

Washington, D.C., Maryland and Virginia say they have no plans to force through Internet access taxes while the ban remains expired.

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