September 14, 2007 1:44 PM PDT

New Net taxes could arrive in November

WASHINGTON -- Americans might pay more for DSL and cable modem bills starting November 1, thanks to politicians in the U.S. Congress who have yet to extend a federal moratorium limiting taxes on those services.

At the moment, a handful of bills in both chambers of Congress propose competing approaches, ranging from making the moratorium permanent to extending it for another four years. Earlier this summer, supporters and opponents of a permanent ban indicated they had reached a compromise that would involve extending the ban for another finite period of time and redefining the concept of Internet access to close perceived loopholes.

But no votes have happened, and the proposals are still stuck in the quagmire of congressional subcommittees. The process is being held up because "there are some issues that probably don't belong in this bill that have sort of arisen," Michone Johnson, counsel to the U.S. House of Representatives Judiciary subcommittee, said on Friday. The subcommittee has control over when a preliminary vote would occur on bills in that chamber.

Johnson, who spoke at an event here sponsored by the Federal Communications Bar Association, said subcommittee chairwoman Rep. Linda Sanchez (D-Calif.) was still "reviewing" a compromise draft. Admitting surprise that action hadn't occurred before now, she said she hoped a new bill would emerge "weeks before the deadline."

The outlook is murkier on the Senate side. Mike O'Reilly, legislative director for Sen. John Sununu (R-N.H.), one of the primary sponsors of a permanent tax ban in that chamber, said the Senate was keeping an eye on the House action but wasn't sure when it would act.

Although Sununu is one of the more ardent low-tax advocates in the Senate, his colleagues may not be as committed. "If there are members that seek to delay," O'Reilly warned, "I believe either they'll face embarrassment or political pain from constituents for doing so."

If the moratorium is allowed to expire, states would be allowed to levy discriminatory taxes on digital subscriber line, cable modem, wireless and even BlackBerry-type data services. First enacted in 1998 and renewed after some debate in 2004, the existing law prevents state and local governments from taxing "a service that enables users to access content, information, electronic mail or other services offered over the Internet."

Each time the bill has come up for renewal, state and local officials have opposed making the ban permanent, arguing it's best for the policy to stay flexible so states can re-evaluate whether collecting such taxes is necessary for their operations. So far, they've won over politicians on that front.

States also don't like the idea of taking away the so-called "grandfather" provision of the law, which allows states that were already collecting taxes on Internet access before the federal law took effect to continue doing so. (Currently seven states fall into that category, according to David Quam, a lobbyist for the National Governors Association.)

Another sticking point has involved the definition of Internet access. Organizations like the NGA have voiced concern that companies are using the law to skirt collection of required taxes on services often bundled with Internet access, such as phone or cable. They also don't want the existing definition to suggest voice over Internet Protocol (VoIP) service is immune to taxation. Meanwhile, Internet access providers have complained that the existing law's definition could create a loophole allowing Internet backbone providers to be taxed. The groups have said they were able to craft language that addresses those concerns and would be satisfied to see it in the proposal's final version.

As for the "other matters" complicating introduction of a revised bill, one issue apparently concerns a push by some to tack on a ban on satellite television taxes, participants at Friday's event suggested. Another is the question of what to do about the handful of states that have reworked their tax systems and put into place what are known as "gross receipts" taxes. That type of tax involves a set fee on a company's total revenue, which could potentially complicate matters for firms offering Internet access. Quam said the NGA hasn't yet taken a position on how to handle that scenario.

Although some measure of common ground seems to exist among the major lobbying forces involved in this debate, it's unclear whether they'll be able to eke out an agreement in time.

On one hand, Broderick Johnson, a spokesman for the Don't Tax Our Web Coalition, which is composed of major phone, cable and Internet companies, predicted during Friday's event that the consequences of failure to pass a bill in time would be "dramatic," with Internet service providers forced to collect between 5 percent and 14 percent in taxes. However, he only named one state-- Montana--that has an Internet access tax poised to kick in immediately if Congress doesn't act.

That statement drew visible eye rolling from the NGA's Quam, who claimed when the ban expired for a year in the past, "nothing happened." Besides, he said, some states, such as Colorado, already have their own prohibitions on Internet access taxes.

"Companies may have to prepare, but they're not going to start collecting," he said. "We've been down this road before--when you have all parties agreeing there can be moratorium, it can go retroactive."

CNET's Declan McCullagh contributed to this report

See more CNET content tagged:
subcommittee, John Sununu, ban, tax, Internet access


Join the conversation!
Add your comment
Well the politicians have done it to us again and found yet another way to tax us. Vote these deadbeats out of office.
Posted by abbottpark (42 comments )
Reply Link Flag
The old cliche' is coming true!!!
"They won't stop till they tax the air we breathe." I used to laugh at that one, but I'm not finding it so funny anymore :(
Posted by mmt70 (1 comment )
Reply Link Flag
Untill Congress also suffers . . .
The way Congress runs - usually by exempting themselves from ALL rules that apply to everyone else - and they feel no pain for the rules they invoke onto others - this best "Do nothing Congress" of the last 40 years will quietly do nothing, allow other states to RAISE TAXES - accept no responsibility - technically correct - and then run campaigns NEXT year on repealing it.

Like the Blackberry threatened cutoff due the copyright suit - Blackberry had a workaround to cut off EVERYONE BUT CONGRESS - they had a special exemption to continue to get signals even if an injunction was granted - shields the elected preventatives from harm they were ALLOWING the patent law to cause others.

This is no different.

Course with an access fee then ALL FREE WIRELESS points will HAVE to charge people to use them - since THEY will be charged by the counties / cities / states to get onto the network.

Kiss all free sites goodbye - no "provider" is going to pick up a $300 to $1000 a month tab per wireless hub charge. 500 or more people A DAY could use a free connection - and the cities WANT that 'free' money to pay for things people DON'T WANT - and the users have NO SAY in being taxed - since the same locals act like Congress and once elected never listen to what the people say - since the people never have "the big picture" and things are "too complicated for them to understand."

Tom Philo
<a class="jive-link-external" href="" target="_newWindow"></a>
Posted by taphilo-2003685639374287843630 (130 comments )
Reply Link Flag
Don't see what the problem is
On the last election cycle, the Democrats promised EXACTLY 2
If you vote for us, we will;

1) Hate Bush
2) Punish everyone who voted for us with massive tax increases.

Seems to me that we're getting EXACTLY what was promised, so
quit your whining.
Posted by GGGlen (491 comments )
Reply Link Flag
That's harsh Dude
Accurate, but harsh.

If they don't raise our taxes, where will they get the money to give away to all the deadbeats?
Posted by rcrusoe (1305 comments )
Link Flag
Ignorant and illogical
You are correct about the Democratic Congress. What doesn't
make sense is that taxing the internet also affects the lower
class in a bad way since the Democrats claim to be for the little
guy. Taxing internet and cable/satellite services affects all
people not just the rich.

We need to stop electing people that are so old they have
borderline alzheimer's.

"With age comes wisdom, sometimes with a hint of dimentia"
Posted by cooldogjones (53 comments )
Link Flag
Envy of Asians....
This may just be one of those fine decisions that puts the us broadband market so far ahead those of Korea and Japan...

Yeah, as a nerd, I'll seriously consider learning korean or japanese, and moving across the pacific-- where people /think/. I mean, 100Mb? *drools*
Posted by ethana2 (348 comments )
Reply Link Flag
The internet should not be taxed as it is a form of our Freedom of Speech Act. The internet is for everyone not just the rich.

Is the air we breath next to be taxed?

Posted by alberthebert (4 comments )
Reply Link Flag
write your congress member/senator
I wrote my senator when the story first broke months ago. He's a democrat (so don't lump them all together), and he said he opposes any sort of taxing on the internet, and is trying to get a bill through that will make the moratorium on taxation of the 'net permanent. write them, hound them until they listen! Take a few moments, instead of crying on teh board!
Posted by crazynexus (67 comments )
Reply Link Flag
The death of internet
Taxes is the way to destroy business on the web and to destroy internet Access in general we just pay taxes what the hell we need to change this tax eating system only to benefit the few. We need a change on this abuse.
Posted by Alexrod55 (6 comments )
Reply Link Flag
The US Gov't can not afford to lose anymore respect from the people this means that I have to pay extra costs toward Comcast's lousy services, extra for my specialized service provider, extra for my travel expenses (in which is already outrageous), extra for shopping on rare to find goods (already expensive), a tax on the fees incured for internet local advertising....etc..etc...etc

Hmm...i figured that if I just closed my buiness, moved back across the country by my parents, get rid of the internet services...I will save a little over $10,000 a year. AND YET...still, the government WILL NOT receive any revenue. Makes you wonder how many others may financially be foreced to take this route.

The internet as well as been a strong force in keeping idol hands out of trouble. Kids spend a lot of time on the internet in which keeps them out of getting into trouble when they are bored. A lot of parents will not be willing to pay taxes on top of internet use for their kids.

Email tax? That is just unbelievable. I can definitely say that i would terminate my accounts. I receive well over 200 emails a day an some days, send out as many.

Online email spam advertisers....yes, these are horrible, but that is how some of them can stay in business. If there are taxes on their services, ontop of taxes on our emails an services...then we wont even bother going to those sites to even contemplate purchasing services. Hence, they go out of business and there will not be any chance of the government collecting any money from them as well.

The internet use will decrease, revenue will still be down. Government will lose even more public respect. Who knows...maybe something like this is exactly what we need any order to get these morons out of office. And no...i did not vote for these morons.

Cheers....and may the universe be with us all
Posted by Jasper069 (2 comments )
Reply Link Flag

Join the conversation

Add your comment

The posting of advertisements, profanity, or personal attacks is prohibited. Click here to review our Terms of Use.

What's Hot



RSS Feeds

Add headlines from CNET News to your homepage or feedreader.