Senate Renews E-Tax Moratorium

The U.S. Senate approved a two-year extension to the Internet tax moratorium. The bill will now be sent to the White House for the president's signature. The Bush administration has signaled that the president would sign the measure into law if passed.

by Patricia Fusco Managing Editor of ISP-Planet [November 16, 2001]

Acting on a voice vote, the U.S. Senate approved a two-year extension to the Internet tax moratorium that expired on Oct. 21st. The bill keeps online purchases and the first $25 of Internet access fees levy-free for the next 24-months. Known as the Internet Tax Freedom Act, legislators also rejected an amendment that would have permitted states to begin developing procedures for collecting Internet taxes. By a vote of 57 to 43, the Senate voted to table the amendment that would have required Congress to either acknowledge or deny states rights to tax online sales and/or Internet access fees.

The bill passed by the Senate is a clear extension of the original act and is compatible with the Internet Non-Discrimination Act [H.R. 1552] passed by the House. The bill now goes to President Bush, who has indicated he supports the legislation.

Representative Chris Cox (R-VA), House Policy Chairman and sponsor of the house bill and Senator Ron Wyden (D-OR) co-authored the original Internet tax moratorium. Senator George Allen (R-VA), chairman of two key committees, played a major role in successfully steering the passage of the current bill.

In a statement, Rep. Cox said the extension of the tax moratorium is wonderful news and commended the efforts of Sen. Wyden.

"Senator Wyden deserves a gold medal for his resolve to pass this bill. His commitment to disarming the tax collectors who target the Internet for discriminatory tax treatment is heroic," Cox said. ""Although I would have preferred to honor Vice President Cheney's wishes that access taxes be banned permanently, this is a fair compromise."

House Majority Leader Dick Armey (R-TX) applauded Senate passage of legislation to prohibit multiple and discriminatory taxes and access charges from being levied on the Internet for two years.

"This is welcome news for the high-tech engine of our economy," Armey said. "The taxman won't have a chance to impose unfair taxes on consumers who take advantage of the convenience of e-commerce. "When this moratorium expires, I hope its value to our economy will be clear," he added. "We should ban these unfair taxes for good."

Tax v. funds
Before the next two years are up, expect to see Congress work with state agencies and streamline tax systems in a way that allows for Internet taxation in the future. Ten states already levy some form of Internet access tax. These states were grand fathered into the 2001 Internet Tax Freedom Act and are allowed to continue collecting online sales taxes or taxes on Internet access fees paid to Internet service providers.

But this is not to say that there will be no new taxes on Internet access, usage, or sales until the legislation expires in Nov. 1, 2003. You may already be familiar with Universal Service Fund (USF) charges that have been appearing on your bill. As a result of the Telecommunications Act of 1996, all telephone companies are required to contribute to the government mandated USF fund, which was created to help ensure affordable telephone service to schools, libraries, rural health care facilities and similar groups.

Telephone companies are permitted to charge USF fees as a way to recoup this cost of providing its customers with phone service. As technology blurs the lines of distinction between voice and data services, more and more policy makes want to see USF fees applied to Internet access, as a way to fund rural and inner city broadband deployment.

If USF fees were extended to data communication, although not officially considered a "tax," the Federal Communications Commission would be tasked with implementing the system that would collect and allocate monies paid into the fund. The FCC has mulled over the difference between common carriers and Internet service providers for some time, without ever determining whether the latter should pay into the Universal Service Fund or remain out of arms reach of accountants.

With online sales and basic Internet access fees on their way to being tax-free through the end of Oct. 2003, the USF debate will likely revisit the arguments made in 997 when the agency decided to treat ISPs as "enhanced services," thereby allowing them to avoid paying special access fees to common carriers.

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