March 13, 1997 12:30 PM PST

Net antitax bill goes to Congress

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Two congressmen crossed party lines today to jointly introduce legislation that they hope will protect Internet service providers from the scourge of local taxes.

Sen. Ron Wyden (D-Oregon) and Rep. Chris Cox (R-California) introduced the Internet Tax Freedom Act, which would create a national moratorium on state and local taxes of the Internet. The law, one of many Internet taxation bills now being considered by Congress, has drawn the most attention so far.

The act is sure to get enthusiastic support from ISPs, which have been rallying against taxes that they say could wind up stifling business on the Net before it really has a chance to take root.

While some localities have seen the Net as a source to "milk," as Cox's office put it, others have gone 180 degrees the other way, passing legislation that gives tax breaks to lure online businesses. The legislation introduced today, if passed, would take such decisions away from local governments altogether.

The Net, Cox said in a statement, has to potential to "bring more services and products to more people and often do it faster, easier, and cheaper than current market mechanism." But, he added, "the Internet will not develop this extraordinary potential if it is shackled by government regulation and taxes."

The act also would eliminate the uneven way ISPs are treated throughout the country, stated Dean Andal, a member of the California State Board of Equalization and a supporter of the federal law. Conflicting tax jurisdictions constitute "a substantial impediment to the growth of electronic commerce."

Wyden agreed. "Allowing a chaotic, helter-skelter approach to taxing electronic commerce could harm hundreds of thousands of businesses and millions of consumers," he said in a statement.

The Cox-Wyden act also calls for the Clinton administration to develop a comprehensive plan to address the issue of electronic commerce taxes.

But the administration may beat them to the punch. Ira Magaziner, the administration's spokesman on e-commerce, has already pledged that no special taxes would be applied to online transactions.

And a separate bill intended to shield the Net from federal taxes is already awaiting consideration by the House Ways and Means Committee.

As the Internet grows and develops into a profit center, the debate over taxation becomes increasingly heated across the country. ISPs argue that they shouldn't be subjected to federal, state, or municipal taxes because they already pay telecommunications fees.

One bill, introduced last week by Rep. Dave Weldon (R-Florida), would amend the IRS Code to exempt Internet access and online service fees from taxes related to federal trade.

Such taxes could be used to reap federal revenue on each connection offered by an ISP or on their subscription rates. The bill would prevent federal agencies or departments, such as the IRS, from funding studies to explore potential revenue streams related to Net taxation.

"We must not allow this budding industry to be smothered by federal taxation," Weldon said on the House floor last week. "Let us here resolve not to interfere with a technological phenomenon which has done so much to inform and educate so many millions of people."

Weldon introduced the Tax-Free Internet Act after a hearing the report of a White House task force on the government's role regarding the Internet. The head of the task force, Magaziner, has already pledged that no special taxes would be applied to online transactions.

But Weldon says he doesn't want to take any chances. His home state has organized its own strenuous effort to protect the Net from taxes. In January, a state task force recommended that access to the Internet remained untaxed and a bill is now making its way through the Florida senate to prevent local and state agencies from imposing such taxes.

Not surprisingly, Weldon's plan has gained the support of companies that supply Internet connections, such as America Online.

"AOL strongly supports your policy efforts and those in the White House and the Treasury Department to make the Internet a global tax-free zone. Any new tax could threaten the continued growth of this global medium," said Ellen Fishbein, AOL's assistant general counsel, in a statement.

With national leaders coming out against new taxes on the Net, some states and local governments have abandoned plans to apply taxes. For instance, city leaders in Tacoma, Washington, quickly dropped plans by a city bureaucrat last fall to tax all ISPs that offered access within the city limits.

Others are still pressing forward, however. Fort Collins, Colorado, already applies a municipal sales tax to local ISPs based within city limits. The Iowa and Wisconsin department of revenues have deemed taxable both set-up fees for dial-up services and access fees charged by ISPs within the state.

 

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