May 23, 2007 10:10 PM PDT
Net taxes could arrive by this fall
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While it's too early to know how much support Enzi's bill will receive, foes of higher taxation are marshaling their allies. Sen. Ted Stevens, an Alaska Republican, said Wednesday that he'd like "to see an impregnable ban on taxes on the Internet."
A taxing question
Pro-tax and antitax forces are jockeying for position before a Net access tax moratorium expires in November. Also on the table: a proposal to usher in mandatory online sales taxes.
Enzi bill: Ushers in mandatory sales taxes on Internet purchases.
S. 156: Renews expiring access tax moratorium permanently.
H.R. 1077: Renews expiring access tax moratorium permanently and eliminates grandfather provision permitting nine states to collect taxes.
H.R. 763: Renews expiring access tax moratorium permanently.
Jeff Dircksen, the director of congressional analysis at the National Taxpayers Union in Alexandria, Va., said in written testimony prepared for the hearing: "If such a system of extraterritorial collection is allowed, Congress will have opened the door to any number of potential tax cartels that will eventually harm rather than help taxpayers."
Internet access taxes
A second category of higher Net taxes is technically unrelated, but is increasingly likely to be linked when legislation is debated in Congress later this year. That category involves access taxes, meaning taxes that local and state governments levy to single out broadband or dial-up connections. (See CNET News.com's Tech Politics podcast this week with former House Majority Leader Dick Armey on this point.)
If the temporary federal moratorium is allowed to expire in November, states and municipalities will be allowed to levy a dizzying array of Net access taxes--meaning a monthly Internet connection bill could begin to resemble a telephone bill or airline ticket with innumerable and confusing fees tacked on at the end. In some states, telephone fees, taxes and surcharges run as high as 20 percent of the bill.
These fees that states levy on mobile phones, cable TV and landlines run far higher than state sales taxes at an average of 13.3 percent, cost the average household $264 a year, and total $41 billion annually, according to a report published by the Chicago-based Heartland Institute this month. Landlines are taxed at the highest rate, 17.23 percent, with Internet access being virtually tax free, with the exception of a few states that were grandfathered in a decade ago.
Dircksen, from the National Taxpayers Union, urged the Senate on Wednesday to "encourage economic growth and innovation in the telecommunications sector--in contrast to higher taxes, fees and additional regulation" by at least renewing the expiring moratorium, and preferably making it permanent. Broadband providers like Verizon Communications also want to make the ban permanent.
But state tax collectors are steadfastly opposed to any effort to renew the ban, let alone impose a permanent extension. Harley Duncan, the executive director of the Federation of Tax Administrators, said Wednesday that higher taxes will not discourage broadband adoption and his group "urges Congress not to extend the Act because it is disruptive of and poses long-term dangers for state and local fiscal systems."
Sen. Daniel Inouye, the influential Democratic chairman of the Senate Commerce committee, said: "Listening to the testimony, I would opt for a temporary extension, if at all."
If the moratorium expires, one ardent tax foe is predicting taxes on e-mail. A United Nations agency proposed in 1999 the idea of a 1-cent-per-100-message tax, but retreated after criticism. (A similar proposal, called bill "602P," is, however, actually an urban legend.)
"They might say, 'We have no interest in having taxes on e-mail,' but if we allow the prohibition on Internet taxes to expire, then you open the door on cities and towns and states to tax e-mail or other aspects of Internet access," said Sen. John Sununu, a New Hampshire Republican. "We need to be honest about what we're endorsing and what we're opposing."
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