Senate Endorses Internet Tax Ban

The Senate voted overwhelmingly Thursday to ban new taxes on Internet access for the next four years and to require nearly a dozen states to phase out existing levies that together raise about $120 million a year.

The 93-3 vote came after three days of bitter, mostly partisan debate fueled by intense lobbying by state and local government officials. Local officials warned federal lawmakers that they stood to lose millions of dollars in badly needed revenue if a tax ban was approved.

But aided by President Bush, who gave a speech in Minneapolis on Monday telling lawmakers they “must ban taxes on access” to keep high-speed Internet connections affordable, Intel Corp. and other high-tech companies fought back.

“The U.S. Senate’s passage of legislation extending the Internet Tax Freedom Act for four years is great news for American consumers and the U.S. economy” and preserves a “tax-free environment in which cable and other broadband providers can continue to invest billions of dollars in order to bring affordable high-speed Internet service to all Americans,” said Robert Sachs, president of the National Cable & Telecommunications Assn.

The Senate measure calls for a four-year moratorium on new Internet-access levies and expands the definition of qualifying connections to include cable modem, wireless, digital subscriber line and traditional dial-up service. It avoids the sort of taxes local jurisdictions impose on traditional telephone service.

Congressional leaders now must reconcile the Senate bill with a more stringent measure passed by the House last fall that imposes a permanent ban on Internet taxes. Neither bill addresses the booming online commerce industry. Goods sold by giant online merchants such as Amazon.com largely escape sales and use taxes.

The Senate impasse over Internet taxes largely centered around what telecommunications services would be beyond the reach of local tax collectors and whether the ban was needed by a high-tech sector that shows increasing signs of vigor.

Sen. Dianne Feinstein (D-Calif.) noted that “not one single company” had contacted her about the bill but that she had “heard from 480 cities in the state saying, ‘Please don’t do this.’ ”

Feinstein led a coalition of Senate Democrats who balked at a compromise measure offered by Sen. John McCain (R-Ariz.) that they said might prohibit locales from taxing fast-growing new services such as Internet telephony, which are taking away market share from taxable telephone service.

To address that concern, McCain and Sen. Ron Wyden (D-Ore.) agreed to clarify that the tax ban did not apply to the new technology, which allows consumers to make telephone calls over the Internet using high-speed cable or DSL connections.

But they refused to permit a proposal that would have let state and local governments continue taxing high-speed DSL connection for four years, saying telephone service -- which supplies DSL lines -- shouldn’t be subject to double taxation.

“We have held steadfast to the proposition that the Internet, this extraordinary and global treasure, shouldn’t be subject to multiple and discriminatory taxes,” Wyden said.