posted 02-12-2004 02:08 PM            

Senators Push Two-Year Internet Tax Ban

U.S. senators opposed to a bill to permanently ban Internet access taxes unveiled rival legislation on Wednesday for a temporary tax moratorium that would not threaten state and local revenues.

"The other option is the wrong policy and it couldn't come at a worse time," Tennessee Sen. Lamar Alexander, a Republican, told a news briefing where he and Democratic Sen. Tom Carper of Delaware announced plans to introduce their bill.

Republican Sen. Kay Bailey Hutchison of Texas and Democratic Sen. Diane Feinstein of California are co-sponsors of the bill, which bans new taxes on Internet access, including via Digital Subscriber Lines (DSL), for two years.

The senators say a broad definition of "Internet access" in the bill they oppose would prevent state and local governments from collecting sales taxes on telecommunications services as basic as telephone calls, because such traditional services are increasingly migrating to the Internet.

The bill imposing a permanent ban, sponsored by Virginia Sen. George Allen, a Republican, and Oregon Sen. Ron Wyden, a Democrat, includes taxes on DSL access under its prohibition.

It also eliminates access taxes that were in place in some states before 1998 and which were allowed to stand under the previous moratorium law.

The new alternative measure would retain the "grandfather" clause allowing states that are already taxing DSL and other modes of Internet access to continue doing so.

Alexander and Carper called the Allen-Wyden-sponsored bill a tax cut for telecommunications companies at huge cost to already cash-strapped state and local governments, which would lose billions of dollars in tax revenues.

But Allen said the Alexander-Carper bill would allow state and local governments to slap a 15 percent tax on consumers purchasing Internet access.

"Make no mistake about it -- the proposal offered today would continue to allow harmful regressive taxes on Internet access services, especially high-speed, broadband service," Allen said in a statement.

Despite recovery in the national economy, state and local government revenues remain strained and demand for safety net services remains high, straining budgets.

In California, state and local governments would lose $836 million annually, according to a study by Ernst & Young cited by the senators. Florida would lose $1.06 billion, Texas would lose $1.2 billion and Tennessee would lose $361 million.

Both the permanent and temporary ban legislation are designed to replace a 1998 moratorium that kept state and local governments from imposing taxes on the monthly fees Internet providers such as EarthLink Inc. charge customers.