Nearing a Tax-Free Internet

(Wired) WASHINGTON — Connections to the Internet would remain tax-free under a bill the House passed Wednesday. The legislation, passed with bipartisan support, makes permanent a ban on taxing Internet connections. A temporary ban on the taxes, first enacted in 1998, runs out on Nov. 1.

New language clarifies that all types of Internet access ? ranging from dial-up connections and high-speed DSL to cable modems ? cannot be taxed.

“This bill would broaden access to the Internet, expand consumer choice, promote certainty and growth in the IT (information technology) sector of our economy and encourage the deployment of broadband services at lower prices,” said Rep. Chris Cannon, a Utah Republican.

Rep. Christopher Cox (R-California) described the original moratorium as “something of an experiment” and declared it a success. Keeping Internet access tax-free will give more people access, he said.

“It’s just a little bit too expensive for a lot of people,” Cox said. “A nick here, and a little bit of nickels and dimes here, would add up to a serious amount of taxation for most people.”

The nine states who impose a communications tax on Internet connections stand to lose $80 million to $120 million a year, according to the National Conference of State Legislatures.

Several Texas Democrats opposed the bill, including Rep. Gene Green, who said Texas would lose $45 million a year in tax revenue.

“I don’t need to remind my colleagues of the fiscal crisis that our states are currently finding ourselves in, including the state of Texas,” Green said.

A similar Senate bill would give states that tax Internet connections three years to phase them out and find new sources of revenue.

NCSL spokesman Neal Osten said states also worry that a permanent moratorium will lead to confusion when telecommunications companies develop new technologies never contemplated by the law. When the first moratorium was introduced in 1998, he noted, cell phones were a novelty and DSL service had no consumer market.

New technologies might have to fight their way into the tax exemption.

“It’s going to be a battle then to get Congress to focus,” he said.

The bill does not affect sales taxes on goods purchased over the Internet. An organization of state governments plans to propose a plan next week to streamline state sales tax collections on Internet commerce.