No Tax on US Internet Access — Until at Least 2007

Last week, US Congress passed a bill restricting states from taxing Internet access fees and limiting the taxation that could be applied to purchases made over the Internet, at least until 2007. The new bill is similar to a three-year moratorium on the taxation of Internet services that expired last year, with a few important changes. To begin with, the new bill reaches further than the original moratorium, which was written before high speed DSL, satellite and cable access were widely available to the public. Instead of only exempting dial-up access from taxation, the new ban will be applied to all Internet access services, regardless of the technology used. The new bill does, however, contain a number of concessions. Although the original moratorium restricted the collection of taxes on Internet access, States that had begun collecting taxes before the original moratorium took effect had been allowed to continue. This practice continues to be grandfathered under the new bill. States that collect Internet taxes have up to three years to end their collections. In addition, concerns that the bill would be used to eliminate taxes on voice communications carried over the Internet have been silenced. The bill allows for continued taxation of telecommunications that use voice-over-Internet protocol (VoIP). It is likely that these concessions were necessary in order to have this bill approved. An attempt last year to have Internet access taxes permanently banned could not find enough support to pass the Senate, despite a strong push from the telecommunications industry. It is widely expected that US President Bush will sign the bill into law. For a copy of the bill, S 150, visit: http://thomas.loc.gov. Summary by: Sue Diaz