President Bush Signs Internet Tax Moratorium into Law

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On Friday of last week, President George Bush signed into law an initial three-year moratorium on Internet taxes that expired in November 2003.

The bill, which was passed by Congress last month, bans taxation of all types of Internet connections, from traditional dial-up services to high-speed broadband lines. The Internet tax moratorium is retroactive to last year and is set to expire November 1, 2007.

The bill also renews for four years a provision exempting states from the ban that taxed dial-up Internet access before October 1998 (except for Wisconsin, since its exemption expires in three years). An additional clause exempts for two years states that imposed taxes on broadband Internet access before November 2003 from the ban. The legislation bans three types of taxes, including taxes on Internet access, double taxation — for example, by two or more states -- of a product or service bought over the Internet and discriminatory taxes that treat Internet purchases differently from other types of sales.

It also clarifies and updates the definition of Internet access to ensure technological neutrality, so that the moratorium applies consistently to any type of access (DSL, dial-up, cable modem or wireless service). It also ensures that nothing in the legislation will affect state and local taxation of voice telecommunications services (including Voice over Internet Protocol), the application of any federal, state or local regulatory fees, or other telecom services that are not purchased or used directly to provide Internet access.

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