A temporary patch
Fears that Congress will implement a permanent ban on local government Internet access taxes have been replaced with the uncertainty of how long the next moratorium will last. Despite calls for a permanent ban, the Senate approved a measure late last month that would extend the current moratorium for seven years. A week earlier, the House approved a four-year moratorium.
While they were not expecting an ideal solution, local officials were hoping for the temporary ban, which they say will at least force Congress to revisit the issue every few years. “We support the temporary extension,” says Christina Loftus, principal legislative counsel for the Washington-based National League of Cities. “A permanent moratorium could [leave] a whole way of communicating untaxed. [Given how technology develops], it is unforeseen the way the Internet may go in the next 5 to 10 years.”
While only one House member voted against the temporary extension bill, many lawmakers support a permanent ban, saying it is needed to spur telecommunications companies to invest in expanding broadband access. However, most said they voted to temporarily extend the moratorium to keep it from expiring.
A bill virtually the same as the House legislation was first introduced in the Senate, but it was held up in committee. A bipartisan measure then was introduced that would have created a permanent ban. That bill, however, never reached a vote.
The House- and Senate-approved temporary bans would prevent most state and local governments from taxing Internet access tools, such as cable modems, digital subscriber lines and wireless connections. The bills exclude nine states that began taxing those items before 1998, when Congress passed the first moratorium. However, the revenues those states generate from the access tools is “well into the hundreds of millions of dollars, so, clearly, preventing them from collecting those revenues would have an impact,” says Jeff Arnold, deputy legislative director for the Washington-based National Association of Counties.
In fact, eliminating the clause that grandfathers those states would cost them between $80 million and $120 million annually, according to recent Congressional testimony from David Quam, director of federal relations for the National Governors Association, based in Washington. “Balanced budget requirements at the state level require that any unanticipated loss of revenues must be made up by either cutting services or raising revenues.”
How the bill will define the term “Internet access” is important to local governments, too. Arnold says his organization supports the House’s definition, which does not exempt services delivered online that are traditionally taxed, such as television. Some local officials say that the Senate’s version could result in some mediums of communication, such as e-mails, being permanently untaxable.
The debate over taxing Internet access also is a question of local authority says Arvada, Colo., Mayor Ken Fellman. “Most local government officials would say the decision of what and what not to tax is best left to local officials,” he says. “If people don’t feel they are being served right, there are options. One is to elect new leaders.”
The author is the Washington correspondent for American City & County.