Senate to Debate Internet Taxation

The U.S. Senate this week will attempt to break a stalemate on Internet access taxes after months of inaction on the legislation, according to Senate aides.

A compromise measure emerged late Friday, and though crucial details remain unresolved, a proposal by Senate Commerce Committee Chairman John McCain (R-Ariz.) to prevent states from taxing Internet access fees for four more years could prompt the Senate to vote to renew the ban that expired in November.

Lawmakers have been unable to agree on whether the 1998 law that barred state and local governments from taxing the monthly fees that Internet providers like America Online charge their customers should be made permanent or remain temporary. They have also been unable to decide whether it should be expanded to cover emerging technologies such as telephone calls over the Internet.

Boosters such as Virginia Republican Sen. George Allen say an expanded ban would encourage innovation, while skeptics such as Sen. Thomas Carper, a Delaware Democrat, say it could deprive states of much-needed revenue as phone calls, music sales and other activities migrate to the Internet.

The Senate will begin debate today and aim for a final vote by the end of the week, staff said. If the measure is passed, it will need to be reconciled with a House-passed version similar to Allen’s proposal.

No states have moved to tax access fees since the ban expired, the National Governors’ Assn. said.

The measure from McCain would extend the ban temporarily for four years and ensure that states could tax Internet-based telephone service.

Senate Majority Leader Bill Frist (R-Tenn.) “is certainly interested in looking into that compromise,” spokeswoman Amy Call said of McCain’s plan.

Allen would still prefer a permanent ban, but he is willing to consider McCain’s approach, said John Reid, a spokesman for Allen.

“Clearly, George Allen doesn’t want to see things taxed, but in order to make this bill palatable and get something passed to protect consumers, it’s better to leave that for another time,” Reid said.

Carper spokesman Bill Ghent said the senator would not take a position on the McCain plan until he had seen the details. “You have to see how things are written to determine their actual impact,” he said.