Deal reached on Net tax bill

Federal legislation to temporarily safeguard the Net from new taxes is primed to move forward after federal lawmakers struck a compromise with state and local officials.

Despite President Clinton's endorsement of the Internet Tax Freedom Act, Rep. Chris Cox (R-California) announced he will alter his bill to appease local leaders who have strongly opposed the proposal.

As introduced in the House and Senate, the act would have placed a six-year ban on states and localities passing new taxes specifically aimed at online access, e-commerce, and other Net services. The moratorium will be shortened to three years under Cox's revisions.

The National Governors Association and the National League of Cities are now backing the legislation after working out the agreement. Both groups fought the proposal because they said it interfered with their right to raise revenue.

But an aide to Sen. Ron Wyden (D-Oregon), sponsor of a leading Senate bill on the issue, said his boss was "consulted" on the new House language but does not support it.

"Wyden continues to support the legislation as passed by the Senate Commerce Committee," the aide told Reuters. "He thinks we have a good bill and we can get it passed."

The amended Net Tax Freedom Act also will contain a so-called grandfather clause so that any taxes already imposed before March 1 will still be valid. The bill will create a commission to study whether the Net transactions or services should be taxed and, if so, how to avoid double taxation and stunting the growth of e-commerce.

The House is expected to vote on the act this month, but the Senate version still contains the six-year moratorium. Earlier this month, Senate majority leader Trent Lott (R-Mississippi) said he would not push forward the bill, as long as local officials objected to it.

Reuters contributed to this report.