Senators aim to ease up on Net, phone taxes

Members of the newly seated U.S. Congress on Thursday wasted no time in proposing a series of measures designed to extend and expand tax breaks on Internet and telephone service.

Sen. Ron Wyden (D-Ore.), John McCain (R-Ariz.), and John Sununu (R-N.H.) proposed legislation that would make permanent an existing ban on state taxes on Internet access. The ban is set to expire on November 1.

The moratorium, first enacted in 1998, was extended amid tense negotiations in 2004. Opponents of a sweeping ban have said it will erode municipalities' vital tax revenues, while supporters, including President Bush, have trumpeted a permanent extension as a means of ensuring more-affordable broadband access.

The law dictates that local governments cannot tax Internet access, including DSL (digital subscriber line), cable modem and BlackBerry-type wireless transmission services. It also prohibits governments from taxing items sold online in a different manner than items sold at brick-and-mortar stores. Exceptions exist for taxes that were already "generally" imposed and enforced before October 1, 1998.

Last year, then-Sen. George Allen (R-Va.) attempted to extend the Internet tax ban by attaching it to a broader telecommunications bill, which died in the Senate without a floor vote.

The major lobbying groups for the telephone and cable industries were quick to praise the bill's re-emergence. "Maintaining a tax-free environment for broadband services allows cable and other broadband providers to provide more affordable high-speed Internet service to millions more consumers in an environment unfettered by unnecessary taxation," Kyle McSlarrow, president of the National Cable and Telecommunications Association, said in a statement.

Calling off taxes
Separately, Sen. Chuck Schumer (D-N.Y.) and John Ensign (R-N.V.) each introduced bills that would repeal the remaining portion of a federal excise tax that applies to customers who receive only local telephone service.

The Internal Revenue Service and the Department of the Treasury decided last May to stop collecting a 3 percent tax on monthly telephone bills for long-distance and bundled services, but the remaining tax "unfairly penalizes consumers who subscribe only to local telephone service," said Walter McCormick, president of the U.S. Telecom Association. "Repealing this regressive tax is long overdue and we will work closely with Congress to repeal the tax this year."

Senate committees approved similar proposals last year, but they died before reaching a full vote and heading to the president's desk.

Also on Thursday, Sen. Ted Stevens (R-Alaska), who had served as the chairman of the Senate Commerce Committee, reintroduced a measure that could result in new fees on users' broadband bills.

Under his Universal Service for Americans Act, all communications services--whether they be broadband, voice over Internet protocol or telephone--would be required to pay into a fund subsidizing service in rural areas, schools and libraries.

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