Apr 30, 2004 3 min read

WASHINGTON (AP) – The Senate voted Thursday to restore a ban on state and local taxation of the services that connect consumers to the Internet. “We have held steadfast to the proposition that the Internet, this extraordinary and global treasure, shouldn’t be subject to multiple and discriminatory taxes,” said Sen. Ron Wyden, D-Ore.

The Senate voted 93-3 to prohibit state and local governments from imposing taxes on Internet access but to allow some states already collecting the levies to continue.

The House last fall voted to permanently ban taxes on Internet access, but the permanent ban couldn’t win enough support to pass the Senate despite a strong push from the telecommunications industry.

Some senators argued the ban amounted to an unnecessary subsidy for telecommunication companies and a drain on state and local revenues. They won multiple changes, such as an exemption for some taxes already in place.

Sen. Lamar Alexander, R-Tenn., said the changes succeeded in “minimizing the effects of this legislation doing harm to state and local governments.”

Alexander, like other senators pushing the changes, had been a governor.

The House and Senate have to reconcile their differences before the bill becomes law. Neither version effects sales taxes charged on merchandise purchased using the Internet.

Congress first banned taxes on Internet access in 1998. A temporary ban expired nearly six months ago.

Senators spent much of the week arguing whether language in a renewed ban would effectively exempt telecommunication companies from all taxes as the businesses increasingly take advantage of Internet technology.

The problems erupted when lawmakers broadened the ban to cover newer high-speed Internet connections like DSL, cable modems and satellite.

Some said the rewrite went too far and created a loophole for telecommunication companies. Others said the ban simply leveled the playing field and allowed new broadband technologies to compete with cheaper but slower dial-up connections.

To address that concern, senators agreed to clarify that the ban does not effect taxation of Voice Over Internet Protocol, or VOIP, which allows consumers to make telephone calls using the Internet’s backbone.

Senators also decided to let the states that started taxing Internet access before the initial 1998 ban keep imposing their levies.

Senators voted 59-37 to kill a proposed change that would have let state and local governments continue taxing for four years the high-speed broadband connection known as DSL. The vote left in place language that calls on those states to phase out the taxes in two years.

Senators pushing a longer exemption for DSL said local governments rely on the money for essential services.

“Not one single company for this bill in California has contacted me, but I have heard from 480 cities in the state saying, ‘Please don’t do this,”‘ said Sen. Dianne Feinstein, D-Calif.

Los Angeles uses technology taxes to partly fund its police department, she said.

Sen. Ron Wyden, D-Ore., said those taxes, imposed after the 1998 moratorium, violated the spirit of tax-free Internet access. Letting the tax collections continue is “rewarding bad behavior,” he said.

“They have gone out and stuck it to DSL.”

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On the Net:

Information on the bill, S. 150, can be found at http://thomas.loc.gov