January 11, 1997 10:00 AM PST
Read their lips: No new taxes
New York is trying to lure ISPs that are being threatened in other states with new taxes on Net access, in addition to the telecommunications taxes they already pay.
New York Gov. George E. Pataki yesterday directed the State Department of Taxation and Finance to follow a state report that recommends sales tax exemptions for Internet access providers. The report also classifies Net access as an information service, not a telecommunications service.
The New York plan was proposed just two days after two Congressmen said they plan to introduce federal legislation to keep the Net tax-free. Sen. Ron Wyden (D-Oregon) and Rep. Chris Cox (R-California) argued their bill would prohibit new state and local sales and usage taxes for the Net.
Like the new bill, New York's tax plan is aimed at boosting electronic commerce. Pataki also hopes to lure ISPs and jobs to the state.
"The recommendations in this report should send a clear signal to Internet providers and the new entrepreneurs in Silicon Valley, and across the state, that New York welcomes this growing industry and the jobs they provide," he said in a statement.
The report is the result of a year-long study by the tax department into the wave of tax issues that arrived with the with the astounding growth of the Net. It found that Internet access services are not included in the current tax laws and therefore should not be subject to them.
In addition, the state will not collect sales taxes from companies that advertise on the Net through a New York-based access provider.
New York is not the only state to dangle tax breaks before the online industry. Last February, Virginia enacted a law that allows cities to set up technology zones and offer tax exemptions for up to ten years to companies in several high-tech fields, including telecommunications, electronics, computer hardware and software, electronic information, multimedia, and Internet access.
In December, Winchester, Virginia, became the first city to take advantage of a law when the City Council created a "technology zone" in its downtown area. Qualified technology companies who have offices in the 125-acre zone are eligible for sizable tax exemptions and rebates on public utilities over a five-year period.
Technology companies also will receive a quarterly 100 percent exemption during the first year on the state Business Professional Operation Licensing tax, a tax based on gross business profits.
For each of the next four years, the exemption will be reduced. These businesses will also receive rebates based on the same sliding scale for telephone, energy, and cable utilities.