October 26, 2007

Senate Extends Internet Tax Moratorium

The Senate passed legislation by unanimous consent late yesterday to extend the federal Internet tax moratorium by seven years. Extended twice since its adoption in 1998, the moratorium prevents states and localities from imposing taxes on Internet service.

The chamber had been scheduled to vote today on a cloture motion on an amendment by Sen. John Sununu, R-N.H., to make the moratorium permanent. Sununu had offered that proposal to Amtrak reauthorization legislation currently on the floor.

Sen. Thomas Carper, D-Del., an opponent of a permanent ban, had filed a second-degree amendment to grant a four-year extension. The House last week passed a four-year extension. During floor debate yesterday, Carper went further and endorsed a six-year continuation. "I'd be happy to talk about alternatives," Sununu said during a colloquy with Carper, presaging the eventual compromise.

"A seven-year extension nearly doubles the ban that was passed by the House and goes further on technical points to protect e-mails and instant messaging from taxation," Sununu said.

In a statement, Senate Minority Leader Mitch McConnell, R-Ky., praised the deal, adding, "While I was pleased to help move this legislation, the job's not done yet -- we must continue our fight to permanently ban taxes on Internet access."

Carper and Sen. Lamar Alexander, R-Tenn., a co-sponsor of the four-year proposal, said: "This agreement is a common sense victory both for Internet users and for state and local governments. It continues the moratorium on Internet taxation, avoids unfunded federal mandates on states and cities, updates the definition of Internet access, and allows Congress to revisit the issue after seven years."

A Carper aide said, "It came down to a discussion between Sens. Sununu, Carper, [Commerce Chairman Daniel] Inouye and [Majority Whip Richard] Durbin. We feel our goals were met... the bill remains temporary so we can revisit this issue in the future, we got a good definition of what Internet access means, and we protected consumers from taxation on Internet access."

On Thursday, the National Republican Senatorial Committee dedicated the front of its Web site to a countdown clock highlighting the moratorium's pending expiration.

While telecommunications firms and online retailers had preferred a permanent fix, they indicated a temporary extension is acceptable as a last resort.

Earlier in the week, the Congressional Research Service responded to a request from Sen. Ron Wyden, D-Ore., for an analysis comparing the definition of Internet access in the House-passed bill to parameters in the existing moratorium. The CRS concluded that the House language is more restrictive and could result in the taxation of ancillary products and services, as well as e-mail delivered by companies unaffiliated with Internet providers.

Wyden warned yesterday that more important than the moratorium's length "is getting this question of what is covered in the definitions right."

-Ben Schneider and Darren Goode, CongressDaily. David Hatch contributed to this report.

Posted at 7:50 AM
Posted to: Congress, Senate, Taxes
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