Government Groups Oppose Internet Tax Ban

The U.S. Congress shouldn't permanently extend a moratorium on taxes unique to the Internet because the temporary ban keeps Internet providers from abusing the system, a representative of the National Governors Association said Thursday.

If Congress makes the ban permanent, which many lawmakers want to do, nothing would stop Internet providers from trying to expand the number of banned services, said David Quam, director of federal relations for the National Governors Association.

"The temporary provision keeps everyone honest," said Quam, speaking at a Congressional Internet Caucus debate on how long the moratorium should last.

But there's no evidence that Internet providers have abused the ban by trying to include voice or video services as part of Internet access included in the current moratorium, said Broderick Johnson, a spokesman for the Don't Tax Our Web Coalition.

Johnson and Brian Bieron, senior director of federal affairs at eBay Inc., both called for Congress to approve a permanent ban on taxes for Internet access and other taxes unique to the Internet. The current ban, which expires in November, prohibits states and local governments from levying "discriminatory" taxes on the Internet, such as taxing the download of a song more than they tax the sale of music on CDs.

Many U.S. policy makers see broadband adoption as a major way to move the economy forward, and a permanent ban on Internet taxes would help broadband grow, Johnson argued.

"To me, it's common sense," he said. "If you make something more expensive by putting more taxes on it, you're going to depress the ability of people to access it."

But there's little evidence to suggest Internet access taxes hurt broadband adoption, Quam countered. When Congress first passed the Internet tax ban in 1998, it grandfathered in nine states that had already adopted Internet access taxes, and the broadband adoption in those states isn't significantly different than in states with no access taxes, he said.

The debate over the tax moratorium has changed since Congress last extended the ban in 2004. Then, a group of senators, most of them former state governors, questioned whether the ban should be extended at all, saying the ban limits states' ability to raise money. This year, two senators who opposed extending the ban, Lamar Alexander, a Tennessee Republican, and Tom Carper, a Delaware Democrat, have introduced a bill that would narrow the definition of Internet access and extend the ban for four years.

Quam and Jeffrey Arnold, deputy legislative director for the National Association of Counties, both said they support a four-year extension of the ban.

When Congress first passed the ban in 1998, it was trying to protect the fledgling commercial Internet, but such protections are no longer needed, Arnold said. While "no one" wants to tax Internet access, Congress shouldn't permanently interfere in state and local tax decisions, he said.

Part of the objection to a permanent ban is the definition of Internet access that's carried over from the 1998 legislation. That bill banned taxes from access and "other services as part of a package services offered to consumers," and that language may allow Internet providers to include voice, video or music services in the ban, Quam said.

"We haven't been able to change that troublesome definition, which frankly, is too broad," Quam said.

EBay's Bieron said backers of a permanent ban are willing to change the language, but the other side isn't willing to support a permanent ban.

The moratorium doesn't prohibit states and local governments from collecting sales tax on products sold through the Internet. After a 1992 U.S. Supreme Court ruling, states cannot collect sales tax from remote sales through catalogs and the Internet until they put in place a streamlined sales tax system. So far, not enough states have agreed to adopt a common sales tax system, which is unlikely to happen soon.