Senators Battle Over Internet Taxation; a Consumer Victory for Now

A group of about 10 Republicans and Democrats introduced legislation yesterday to keep telecommunications companies from taxing consumer Internet access for at least another two years.

An earlier moratorium expired in November and legislators have battled over how to replace it with an earlier Senate bill that would have blocked the moratorium in the future.

Sens. Lamar Alexander (R-Tenn.) and Thomas R. Carper (D-Del.), both former governors, introduced the earlier bill to stop the extension of the moratorium, arguing that the ban could cost states as much as $9 billion by 2006 since it would also probably eliminate all taxes on telephone calls, which will eventually go through the Internet, the Washington Post reported.

Cash-strapped states, not yet benefiting from the economy’s fledgling recovery, fear a ban that would keep them from taxing the telecommunications companies that provide the phone and Internet lines to consumers.

The new bill, which would extend the moratorium on taxing regular Internet access for two more years, includes influential sponsors Sen. Ernest F. Hollings (D-S.C.), the senior Democrat on the Commerce Committee, and Sen. Kay Bailey Hutchison, an influential Texas Republican. Their bill would allow the 25 states that now tax DSL Internet access to continue doing so, the Post reported, adding that they want the tax ban to apply only to the fees consumers pay to their Internet service providers, not to the various businesses that run the telecommunications network that enables both telephone and Internet service.

DSL service has been eligible for taxation because the moratorium was in effect before the Internet service was available to most consumers, the Post reported, adding that cable-modem access is not taxed.

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