Internet access taxes--is the end in sight?(Federal Focus)

On April 30, the U.S. Senate passed a modified version of the Internet Tax Non-Discrimination Act. While the bill would prevent state and local governments from taxing Internet access for another four years, it is a far better outcome than the permanent ban that appeared inevitable when the previous moratorium expired last fall. However, the muted relief from the Senate's bill has given way to new concern that the House will not approve the bill in its present form. This article summarizes the latest developments in the ongoing debate over Internet access taxes.

A TALE OF TWO BILLS

Late last fall Sens. George Allen (R-VA) and Ron Wyden (D-OR) brought legislation to the floor, S. 150, calling for a permanent ban on all Internet access taxes. The bill expanded the previously accepted definition of "Internet access" to include telecommunications taxes and cable franchise fees. Many members of GFOA and other state and local government organizations were quick to voice their concerns about the bill. Thanks to several supportive senators who took to the Senate floor to explain the negative impact the bill would have on state and local government budgets, S. 150 was quickly removed and left pending through mid-April.

Earlier this year, the champions for local and state governments on this matter--Sens. Lamar Alexander (R-TN) and Thomas Carper (D-DE), along with Sens. Dianne Feinstein (D-CA), Kay Bailey Hutchison (RTX), George Voinovich (R-OH), Ernest Hollings (D-SC), Bob Graham (D-FL), Daniel Inouye (D-HI), Frank Lautenberg (DNJ), and John Rockefeller (D-WV)--sponsored a competing bill, S. 2084, the Internet Tax Ban Extension and Improvement Act. Given the lack of agreement in the federal government and the courts over the definitions of "Internet access," "telecommunications," and "information services," S. 2084 proposed a two-year extension of the moratorium to give stakeholders time to determine how emerging technologies should be defined and thus taxed.

According to the Multi-State Tax Commission, the expanded definition of Internet access under the original version of S. 150 would have led to an $8 billion revenue loss to state and local governments.

APRIL SHOWERS BRING DEBATING FLOWERS

After the spring recess, Senate Majority Leader Bill Frist (R-TN) vowed to bring S. 150 back to the floor of the Senate. Leaders of the competing bills met regularly to find common ground between the two pieces of legislation. When debate finally began at the end of April, members and staff of GFOA, the National League of Cities, the U.S. Conference of Mayors, the National Governors Association, and many other groups sent strong messages to the Senate that a permanent ban was unacceptable. Throughout the week, our "do no harm to state and local governments" message was a constant hum in the Senate offices.