INTERNET TAX NEGOTIATORS STUCK ON ACCESS DEFINITION

The original moratorium expired Nov. 1 and no change is in sight for a week or more. After hours of negotiations Fri., the 2 sides didn’t meet Mon. At our deadline no further meetings had been scheduled. Wed. offers the only opportunity for floor consideration this week, a Hill staffer said. But that day was considered unlikely since negotiations were on hold.

S-150 by Sen. Allen (R-Va.) was pulled from the Senate floor Fri. after it became clear the bill would be defeated or amended in a way its sponsors wouldn’t like (CD Nov 10 p7). Allen and Sen. Wyden (D-Ore.), author of the original moratorium, said Fri. they would reluctantly be willing to put a time limit on the moratorium, and Wyden’s spokeswoman said that offer remained open. Wyden and Allen have suggested 5 years, while Sens. Alexander (R-Tenn.), Carper (D-Del.) and Voinovich (R-O.) have proposed 2 years. But a spokesman for Carper said “permanency is not the big issue here.”

The tougher issue, negotiators agreed, is defining Internet access and determining what should be exempt from taxation. McCain, a permanent-moratorium supporter and negotiation participant, said there was “significant disagreement” on “the fundamental definition of Internet access… it sounds a bit technical and arcane… but it’s vital.” Sens. Dorgan (D-N.D.) and Lautenberg (D-N.J.) raised concerns at the Senate Commerce Committee markup in July about how the moratorium would affect taxes on traditional local and long distance phone service. The bill was approved unanimously, but with the understanding their concerns would be addressed before a floor vote. But the negotiations have morphed into a debate on whether backbone relays among and between telecom providers constitute Internet access.

Allen, Wyden and McCain introduced S-150 on the floor last week with a manager’s amendment reflecting the concerns of Dorgan and Lautenberg on traditional telecom taxes, but retaining language specifically exempting DSL access from taxation. The language had been inserted in the House bill, HR-49 by Rep. Cox (R-Cal.), to address states taxing DSL when bundled with traditional telecom services. Alexander, Carper and Voinovich have proposed alternative language that would ban taxes on end-user DSL service to both residential and business customers, but would permit states and localities to tax backbone connections.

Hill staff working for S-150 opponents told us that their members were making significant concessions, considering states already taxing DSL connections would lose tens of millions of dollars under proposed language. They predicted any savings a telecom company collected from backbone taxes wouldn’t trickle down to customers. The language also would remove from the table the collection of gross receipts taxes, which S-150 opponents said would be a significant financial sacrifice for taxing authorities.

S-150 backers expressed frustration that after they had negotiated on traditional telecom taxes with the manager’s amendment, a new debate had been introduced after the moratorium expired. “The goal post moved,” one S-150 supporter said. It seemed doubtful Mon. S-150 supporters would accept the opposition’s language and permit backbone taxes, largely because both sides acknowledge they don’t know how much revenue would be involved.

Throughout discussion of all taxes affected by the bill, there has been great uncertainty on tax revenue figures, and the Congressional Budget Office recently declined to estimate in several areas. CBO’s abstention has been cited by S-150 opponents as one more reason to not make the moratorium permanent, although its supporters insist they're not trying to destroy state and local tax revenue. In a Nov. 5 letter to Alexander, CBO Dir. Douglas Holtz-Eakin said some estimates could result in large revenue losses, but he wouldn’t commit: “There is some question, however, as to what types of transactions could not be taxed under the bill; under some interpretations, these revenue losses could remain quite small. The issue might ultimately have to be resolved in the courts.”

One constant among the Hill staff members negotiating a compromise is the sense that the other side has mischaracterized their position. S-150 opponents resent that their estimates of tax losses have been questioned when no one is proposing alternatives, and take great umbrage at continuing charges that they want to tax e-mail. They also feel they've made sacrifices to reach consensus.

“My boss has obviously been willing to compromise,” a spokeswoman for Alexander said, noting he had agreed to remove his hold on the bill and discuss alternative language. S-150 supporters argue that every time they think they've reached accommodation on S-150’s language, a new objection is raised, and some view those arguments as a feint in what actually is opposition to any moratorium. “We've negotiated in good faith,” Wyden’s spokeswoman said, “despite the fact that the White House is behind a permanent ban.” While sensitive to the sometimes over-heated rhetoric, both sides told us they were determined to reach a resolution and both said they wanted to see a moratorium on discriminatory Internet taxes passed. Senate Majority Whip McConnell (R- Ky.) said Mon. that “we really must act somehow in that area before we leave.”