November 7, 2003 4:08 PM PST

Ban on Internet access tax stalls in Senate

An attempt in the U.S. Senate to enact a permanent ban on Internet access taxes failed on Friday, with senators vowing to negotiate over the weekend and return to the topic next week.

State and local governments and their allies in Congress warn that a permanent extension of an existing moratorium, which expired on Nov. 1, would cost billions in lost tax revenue. The moratorium had applied to special taxes that singled out dial-up and some other Internet access methods and is not related to sales taxes.

Sen. Lamar Alexander, R-Tenn., said on the Senate floor Friday that the arguments for special tax treatment for Internet access were vanishing. "The Internet is not a baby in the crib anymore," Alexander said. "They can at least afford to hire the most expensive lobbyists. We know that."

Alexander said he hoped to reach a compromise that could be voted on by next week. "We'll be working over the weekend," he said. "We hope we can come to some agreement."

The U.S. House of Representatives voted on Sept. 17 for a slightly different bill that also would make permanent the ban on access taxes. The National Governors Association, which says it would support another temporary extension of the moratorium, objects to the expanded language in both bills that, it argues, would curb states' abilities to tax telephones, cell phones and pagers.

In a letter on Wednesday, the Congressional Budget Office estimated that the definitions used in the Senate bill would cost states that tax DSL access "at least $40 million in sales and use taxes on DSL services in 2004, and at least $75 million by 2008."

The Congressional Budget Office also cautioned that the legislation would cover free content such as movies and music that are bundled with Internet access: "Such content is subject to sales and use taxes under current law but might increasingly be available at no charge as part of an Internet access package."

Sen. Tom Carper, D-Del., argued in favor of the expanded definition in the bill, S.150, by saying the existing law needs to be updated to consider other ways to access the Internet. "The world is changing, the way people access the Internet is changing," he said.

The proposed permanent moratorium is sponsored by Ron Wyden, D-Ore., and George Allen, R-Va.


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