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Moratorium on Internet Access Tax Should Become Permanent, Say CTIA, Coalition

Washington Internet Daily

By Monty Tayloe

A moratorium on taxation of Internet access should become permanent, said CTIA and the Internet Tax Freedom Act Coalition that includes NCTA, NTCA, T-Mobile and Amazon. The current moratorium, extended three times since 1998, is to expire Nov. 1, 2014, unless proposed legislation to make it permanent is passed. The state taxes that would take effect if the moratorium expired would mean higher prices for Internet access, which would hurt the growth of the wireless industry and price out lower-income customers, said CTIA Vice President-Government Affairs Jot Carpenter at an Institute for Policy Innovation event Tuesday.

State taxation of Internet services is "regressive," because the underlying systems such as an ISP's property and assets are already taxed, said Carpenter. States that apply special taxes to providing Internet service are "discriminatory," he said. Carpenter said without the moratorium, Internet service taxes in several states would be "north of 20 percent" of the amount of a bill, which he said is an unnecessary burden for consumers and providers. Wireless companies are already "lugging around a tax system that's a legacy of Ma Bell," said Carpenter.

The proposed legislation to make permanent the moratorium on taxing Internet access is separate from the proposed Marketplace Fairness Act, which would let states require e-commerce companies to collect sales tax on purchases, said Annabelle Canning, who works for tax lobbying firm Capital Partners and represents CITF. The two laws share some backers, including Amazon. The Internet Tax Freedom Act is sponsored by Rep. Bob Goodlatte (R-Va) , along with House Communications Subcommittee ranking member Anna Eshoo, D-Calif. Goodlatte released several principles that he has said online sales tax legislation should follow (CED Sept 18 p8).

Along with barring taxation of Internet access, the Permanent Internet Tax Freedom Act also prevents states from imposing multiple or discriminatory taxes on Internet services, and will also eliminate provisions that have grandfathered in tax programs for Internet access under the moratorium in seven states -- North Dakota, South Dakota, Wisconsin, Hawaii, New Mexico, Texas and Ohio, said Canning. The proposed legislation enjoyed "broad support" in the Senate when it was introduced, and Canning said it's likely to pass. The portion of the proposed rule that bars discriminatory taxes recently received a boost from an Illinois Supreme Court decision knocking down an Illinois sales tax on "click-though" online advertising, Canning said.

Although Canning said she's not aware of any organized opposition to the Permanent Internet Tax Freedom Act, she and Carpenter said state legislators and tax officials were eager to impose taxes on Internet access as a form of income. In 2007, when similar legislation was being considered, the Center on Budget and Policy Priorities released a report ( urging lawmakers to allow the moratorium to lapse. The report said that countries that lead the U.S. in broadband deployment had Internet access taxes in 2007, and none of the states with such taxes that had been grandfathered in under the moratorium had lower Internet access rates than states without such taxes. The report also disputed that Internet access taxes would lead to lower-income users being squeezed out. Since programs administered by local governments -- such as libraries -- are one of the main ways low-income users get access to the Internet, "depriving states and localities of the funds they use to support these services by permanently banning taxation of Internet access is likely to widen, not close, the 'digital divide,'" said the report. The report's author, center Senior Fellow Michael Mazerov, did not comment.