• Senate Votes to Keep Web Access Tax-Free
  • May 24, 2004
  • Law Firm: Reed Smith LLP - Pittsburgh Office
  • The Senate voted overwhelmingly to restore the 1998 ban on taxing Internet connections for four years, though would not go as far as the House, which was in favor of a permanent ban. The ban had lapsed while legislators wrestled with the challenge that broadband brought. Now, the two chambers of Congress must meet to reconcile the differing time periods. The potential losers in this battle would not be the federal government, but state and local governments, which stand to lose billions of dollars in tax revenue, yet won't be at the bargaining table.

    "This bill will ensure that consumers will never have to pay a toll when they access the information highway," said Senate Commerce Committee Chairman John McCain, R-Ariz. "Plainly and simply, this is a pro-consumer, pro-innovation and pro-technology bill." President Bush had asked Congress to permanently ban the levies. He said the Senate's action moved the nation closer to banning the taxes to "help make high-speed Internet services more affordable, increase the number of broadband users and enhance our nation's economic competitiveness."

    To placate state and local interests, the ban was modified so that it would not apply to state and local taxation of voice telecommunication services, including Voice Over Internet Protocol or VOIP. That technology allows consumers to use the Internet to make telephone calls.

    While those states that already had started taxing Internet connections before the 1998 ban preserve their right to continue collecting the payments under the Senate bill, the Senate refused a proposal to grandfather in those states that began taxing high-speed DSL connections after the 1998 tax ban. The 17 states with DSL taxes have two years to phase them out.

    Why This Matters: The efficiencies that the Internet brings to commerce have enormous potential, as does the Internet's ability to reduce barriers to commerce. Adding tax would hinder both the growth of the Net and harm consumers as well as marketers.