Senate passes seven-year Internet tax moratorium

WASHINGTON - The U.S. Senate has passed legislation that would extend a moratorium on Internet access taxes for seven years, giving supporters hope that an extension will be signed into law before the current moratorium expires Nov. 1.

The Senate late Thursday passed the seven-year extension on a voice vote. The moratorium would extend the ban on Internet-only taxes, such as access and "bit" taxes on information as it travels through a taxing jurisdiction. The Senate passed an amended version of a House of Representatives bill, the awkwardly named Internet Tax Freedom Act Amendments Act.

The House passed a four-year Internet tax moratorium earlier this month. The two chambers will have to reconcile the two versions of the moratorium before sending the legislation to U.S. President George Bush to be signed.

The Senate's seven-year extension represented a compromise between a group of senators, many of whom opposed an extension in the past, who wanted a four-year ban, and a second group that wanted a permanent ban.

Senators calling for a four-year ban, including Thomas Carper, a Delaware Democrat, and Lamar Alexander, a Tennessee Republican, argued that a permanent extension would hurt state and local governments' long-term ability to raise money. Other critics of the ban have raised concerns that a permanent ban would give telecom providers the opportunity to press for tax-exempt status on services such as VOIP (voice over Internet Protocol).

"This agreement is a common sense victory both for Internet users and for state and local governments," Carper and Alexander said in a joint statement. "It continues the moratorium on Internet taxation, avoids unfunded federal mandates on states and cities ... and allows Congress to revisit the issue after seven years."

Supporters of a long-term ban say it encourages broadband adoption, and, by extension, helps drive the U.S. economy.

Senator John Sununu, a New Hampshire Republican who pushed for a permanent moratorium, also praised the Senate's action. The amendment crafted by Sununu and Carper, in addition to extending the ban, made some changes to the House bill that were intended to protect e-mail messages and instant messaging from usage taxes, Sununu said.

Some critics, including Senator Ron Wyden, an Oregon Democrat, had raised concerns that a Senate moratorium bill would open up e-mail and instant messaging to taxes.

"This bill -- a drastic improvement over what came out of the House -- makes a clear statement that taxes on Internet access are wrong for consumers and wrong for the economy," Sununu said in a statement. "The Senate has made real progress in the name of Internet tax freedom, passing improved legislation that offers more certainty for this national and global communication network."

Wyden, a long-time tax moratorium supporter, also applauded the Senate vote.

The changes approved by the Senate will protect instant messaging and e-mail, including voice and video messaging services, Wyden said in a statement.

"These services have sparked revolutions in our ability to communicate, bringing distant grandparents closer to their grandchildren and giving our soldiers in the field a more direct link to home," he added.

The IDG News Service is a Network World affiliate.