Scarcely a week before an existing ban on Internet access taxes is set to expire, the U.S. Senate late Thursday voted to let the prohibition live on for seven more years.
The compromise bill, which was approved by a voice vote, would prohibit state and local governments from taxing any service that enables users to connect to the Internet and some related services through 2014. That's three years longer than the version passed by the House of Representatives last week.
The bill won't go to the president's desk just yet. First, the House must approves the Senate's changes. Congressional aides said they were hopeful the whole process would conclude before current law's November 1 expiration date.
States that already had Internet access taxes in place before the ban took effect would still be allowed to keep them. They could also tax Internet services, albeit more indirectly, if they had already enacted broad-based laws that tax a business' gross income or receipts.
The approved version also addresses at least some of the concerns raised earlier Thursday by Sen. Ron Wyden (D-Ore.). Citing a Congressional Research Service memo, he said proposed changes to the scope of the ban under current law--and contained in the House bill approved last week--could unwittingly lead to taxes on e-mail, instant messaging and other Web services.
The Senate's bill was modified before the vote to include a section that says states can't tax "home page electronic mail and instant messaging (including voice--and video--capable electronic mail and instant messaging), video clips, and personal electronic storage capacity, that are provided independently or not packaged with Internet access."
Wyden, who first proposed the Internet tax ban in 1998, said the additional language resolves his "immediate concerns" but that he remains "concerned about the vast range of current and future services that are still exposed to the potential for taxation under this legislation."
To be sure, the bill is far from a blanket ban on all Internet-related taxation. Both the House and Senate versions explicitly say the prohibition does not include "voice, audio or video programming" that charges consumers a fee--such as IPTV and subscription-based Internet phone services--and basically any other "products and services" delivered over the Internet and not specifically exempted by the bill. (The bill also does not deal with the separate question of sales tax on goods purchased online.)
"I will continue to work to protect all Internet services from the web of taxation that has resulted in many telecommunications services paying tax rates as high as alcohol and tobacco," Wyden said in a statement.
A number of Senate Republicans had been agitating for a permanent tax ban, but state and local officials had balked at the idea because they argue they need the freedom to revisit the need for new revenue sources as technologies develop down the line.
Sens. Tom Carper (D-Del.) and Lamar Alexander (R-Tenn.), who preferred another temporary extension all along, said Thursday's compromise "is a common sense victory both for internet users and for state and local governments" and would avoid "unfunded federal mandates on states and cities."
Sen. John Sununu (R-N.H.), one of the most vocal proponents of a permanent ban, and Senate Minority Leader Mitch McConnell (R-Ky.) said they would continue to push for a permanent prohibition.
"In the meantime, 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," Sununu said in a statement after the vote.