SENATE TAKES UP MCCAIN MORATORIUM COMPROMISE

Allen threw his support Tues. behind a 4-year moratorium compromise proposed by McCain. Sen. Wyden (D-Ore.), author of the original 1998 moratorium and an S-150 backer, also backed McCain’s bill. But S-150’s main opponents, Sens. Alexander (R-Tenn.) and Carper (D-Del.), said the compromise didn’t go far enough. Alexander wrote McCain a letter late Mon. urging fixes to his proposal, but McCain went forward Tues. and introduced it as an amendment to S-150.

Senate Commerce Committee member Dorgan (D-N.D.) said he was flexible on 3 of McCain’s 4 compromises -- the moratorium’s duration, VoIP exemption language, and dealing with grandfathered states. But Dorgan said he couldn’t accept McCain’s definition of Internet access, which would exempt from taxation all wholesale DSL traffic. Throughout the last few months of debate, that definition has been at the heart of deliberations, and no middle ground has been found.

Sen. Feinstein’s (D-Cal.) position exemplified the tough decisions facing senators. Feinstein, who boasts many high- tech companies as constituents, was a co-sponsor of Allen’s S-150. She later co-sponsored Alexander’s S-2084, however, after Cal. localities told her S-150 could cost Cal. billions in telecom tax revenue. On Mon. she was an original co- sponsor to a bill by Sen. Enzi (R-Wyo.), S-2348, that seeks to resolve the difference by reviving the moratorium that expired Nov. 1. That approach would put off the debate on the definition of Internet access. It also offended Allen and Wyden because it would keep a disparity between cable and DSL, permitting only the latter to be taxed.

Enzi’s sponsorship of a renewal of the expired moratorium was rich in irony: In 2001 he led the fight against the legislation. Enzi long has urged Congress to give states power to collect sales taxes from remote sellers, including online vendors. In 2001 the moratorium adopted in 1998 expired, and it was several weeks before the Senate managed to renew it. That required fighting off efforts by Enzi to amend the bill to allow remote sales tax collection.

Dorgan was Enzi’s partner in that 2001 effort. On Tues., he took the Senate floor to bemoan that the Internet tax definition hadn’t been altered after the Senate Commerce Committee markup last year -- though he and other committee members were promised such a change might occur. He praised McCain for keeping his word and facilitating talks, but acknowledged “if this were easy a compromise would already have been reached.” He said he couldn’t support the S-150 definition, and predicted it would fail if put to a vote.

Allen noted debate on the issue had been continuous, and said it was time to resolve it. While he preferred a permanent moratorium, he was willing to go with McCain’s 4- year extension. Wyden also said he was willing to support McCain’s language if it meant passage of a moratorium, but said Alexander’s definition of Internet access, which permits taxation on DSL wholesale traffic, “discriminates against the future” and gives cable an unfair advantage.

No sooner had McCain introduced his compromise than Sen. Hutchison (R-Tex.) introduced a secondary amendment to preserve rights-of-way and franchise fees. Hutchison supports Alexander’s S-2084 and has expressed alarm at the loss of taxes Tex. could face under S-150. “I hope we would not step on a state” that has an ongoing telecom fee structure, she said. But Wyden feared her amendment would subject cable operators, who already pay franchise taxes to cover rights-of-way, to a separate right-of-way tax. McCain moved to table, or kill, the Hutchison amendment, and prevailed 64-32.

Along with attracting the support of Allen and Wyden, McCain’s compromise has the backing of several industry groups supportive of S-150. The Consumer Internet Access Coalition, largely funded by telecom companies, is releasing a letter today (Wed.) supporting the compromise. Among signatories are the Americans for Tax Reform, CapNet, the Council for Citizens Against Govt. Waste, National Taxpayers Union, National Assn. of Manufacturers, Small Business Survival Committee, U.S. Chamber of Commerce and the U.S. Internet Industry Assn.

Frist is hoping for a late Thurs. final vote but doesn’t have full control over the timing. Many amendments could be offered to the bill, and not all directly relate to the moratorium. Senate Minority Leader Daschle (D-S.D.) took the floor after the Hutchison cloture vote, warning of an amendment on energy, as he understands Frist has postponed renewal of energy legislation until fall. He filed a cloture motion on the McCain amendment to make such an amendment possible. Some Hill sources speculate that opponents may try to force Frist to pull the bill by prolonging the debate with amendments. Debate hasn’t been closed on S-150. On Mon. the Senate approved a cloture motion, but that only closed debate on a motion to proceed to the bill.

S-150 backers are pushing to pass legislation in some form, because as McCain pointed out, the House has been waiting to conference with the Senate since it passed HR-49 by Rep. Cox (R-Cal.) last summer. HR-49 contains the Internet tax definition found in S-150 -- so even if the Senate-reported bill ends up with an altered definition, the one in HR-49 could emerge in the final conference report. At that point it would be much more difficult for opponents to change the language.