A U.S. senator is pushing legislation that would prevent Congress from extending a long-standing telecom tax to Internet access.
Sen. George Allen (R-Va.) says legislation is needed after Congress’ Joint Committee on Taxation in January suggested the possibility of an expansion of a 3% federal excise tax on telecom to Internet traffic, including e-mail and data services.
The federal excise tax, first enacted in 1898 to fund the Spanish-American War, raises about $6 billion per year. At points during the last 107 years, the tax has been eliminated, reinstated and raised to 25%. Congress made the tax permanent in 1990.
“We won the Spanish-American War over 100 years ago,” Allen said at a press conference last week. “This tax represents an unnecessary service tax on consumers.”
The Joint Committee on Taxation in January presented three options for the tax, one being to tax all Internet traffic. A second would extend the tax just to voice traffic over the Internet, with a third option redefining how long-distance calls are taxed, with no taxes on Internet data or voice.
In November, Congress passed the Internet Tax Nondiscrimination Act , which extended a moratorium on new Internet-only taxes passed by state and local governments. But that bill, also sponsored by Allen, didn’t apply to the current excise tax. Allen’s new bill wouldn’t prohibit taxes on VoIP; that would be addressed under a separate bill likely to be introduced later.
The January report from the Joint Committee on Taxation noted that the growth of wireless-voice services and the Internet have created confusion about how the federal tax should be applied. “The present communications excise tax provisions were enacted before the development of most modern technology,” the report said. “The proliferation of wireless communications technology and the Internet, and in particular broadband access, has blurred the lines between ‘data’ and ‘voice’ and between the functions of transmission and application. Consequently, service providers have found it increasingly difficult to determine which services are taxable communications services and which are nontaxable information services.”
Asked why a bill was necessary to prevent a tax on Internet access that does not yet exist, Allen said it was important to head the idea off before it gains momentum. In addition to the Joint Committee on Taxation proposal, the Internal Revenue Service last July asked for public comments about whether VoIP should be subject to telephone taxes.
Representatives of the Progressive Policy Institute, a liberal think tank, and Americans for Tax Reform, a conservative policy group, both endorsed Allen’s efforts.
Robert Atkinson, vice president of the Progressive Policy Institute, said he disagreed with the elimination of the federal excise tax during the U.S. government’s current budget deficit. But an additional tax on Internet access could slow the U.S. economy and discourage IT investors, he said.
“We’re a long way from maturity in the industry,” he said. “One of the things that’s made the Internet attractive [to investors] is the light tax burden.”
Gross is a correspondent with the IDG News Service.
