Inouye Urges Temporary Extension of Net Tax Extension
The Internet tax moratorium should get only a temporary extension “if at all,” Senate Commerce Committee Chmn. Inouye (D-Hawaii) said Wed. at a hearing to discuss action before the Nov. 1 expiration. He and other Senate Democrats are wary of making the moratorium permanent for fear of robbing states and localities of potential tax revenue as e-commerce grows. Vice Chmn. Stevens (R-Alaska) argued for a permanent ban.
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Republicans shared Democrats’ concern that new legislation clarify what’s being taxed and why. Political sentiments were similar in a hearing Tues. before the House Judiciary Administrative Law Subcommittee (CD May 23 p5) where some of the same witnesses testified. State officials urged a temporary extension until a fair tax system can be devised. Verizon, speaking for a communications industry coalition, said new taxes could harm investment just as Congress is looking for ways to spur deployment.
“We will come up with something that is fair and equitable,” Inouye said, adding that he wasn’t sure what had been enacted in 2004, when the last extension was granted. The original moratorium was imposed in 1998 and included a definition of “Internet access” that’s narrow in relation to current technology. Gaps have emerged -- Internet Service Providers (ISPs) that bundle other services have claimed tax- free status -- further limiting new revenue sources for states.
“This is an unlikely issue to provoke strong passion, but it does,” said Sen. Carper (D-Del.), who introduced a bill Wed. to extend the moratorium 4 years. Co-sponsored by Sen. Alexander (R-Tenn.), the bill also would end tax-free bundling, which “could harm the traditional tax base of state and local governments,” Carper said. The bill would allow the 9 states that collected Internet taxes before the ban could continue collecting the taxes.
Congress needs to make the Internet tax moratorium permanent to send a strong, “pro-investment signal” to potential e-commerce entrepreneurs, said Annabelle Canning, vp-Verizon. Canning spoke on behalf of Don’t Tax Our Web.org, a business-centered group that includes AT&T, Comcast, USTelecom, CTIA, NCTA, Information Technology Assn. of America, Time Warner and Yahoo. Verizon said it supports the bipartisan legislation (S-156 and HR-743) sponsored by Sen. Wyden (D-Ore.) and Rep. Eshoo (D-Cal.).
The “core concern” for states is the need to clarify the definition of Internet access, said David Quam, dir.-federal relations, National Governors Assn. (NGA). Specifically, NGA wants exempted only services needed to connect users to the Internet and not for other bundled services. Quam said the group also argued against phasing out the “grandfather” clause allowing the 9 states to continue taxation: “Preservation of the grandfather clause is important, because it allows Congress to avoid having to define those direct taxes subject to the moratorium” and so define other taxes that must be paid.
But the National Taxpayers Union took the opposite tack, arguing that Congress needs to define when firms should be obliged to pay business activity taxes, said Jeff Dircksen, dir.-congressional analysis-NTU. The group urged legislation that simplifies the tax code, an effort that Sen. Enzi (R- Wyo.) said he’s been spearheading: “Many hours have been spent to try and find the right solution.”
Though passing a law granting a permanent moratorium would be “controversial,” Sen. Dorgan (D-N.D.) said he worries that without the ban consumers would see higher taxes. There’s no easy fix and coming up with the right answer will take work: There are people who advocated a “'permanent moratorium’ and then they leave the room,” Dorgan said, glancing pointedly at the row of vacated GOP seats: “I think this can be resolved.”