Senate Passes Four-Year Internet Access Tax Ban

Published June 1, 2004

The U.S. Senate on April 29 overwhelmingly passed legislation (S. 150) that would extend for four years the recently expired Internet tax moratorium. Alison Bennett, political reporter for the Bureau of National Affairs, called the action “a milestone vote.”

The vote for passage was 93-3, breaking a six-month deadlock that began when the original moratorium expired November 1, 2003. While Congress is now closer to reinstating the ban on a temporary basis or even permanently banning internet access taxes, the Senate bill must still be reconciled with a measure passed in September by the House of Representatives.

Bennett reported, “last-minute support coalesced around a four-year compromise unveiled April 22 by Senate Commerce Committee Chairman John McCain (R-Arizona) after changes were made to the treatment of Internet telephone calls and existing Internet access taxes.”

In addition to the four-year moratorium, the Senate version of the bill allows a handful of states that began taxing Internet access before the 1998 moratorium to continue levying those taxes until November 1, 2007, the same date the new moratorium would expire. The bill also allows 17 states that now tax DSL (digital subscriber lines) to continue those taxes until November 2005.

“This proves the Senate can come to a good result on a complex issue that affects millions of Americans and every state and local government,” Senator Lamar Alexander (R-Tennessee) said shortly after the compromise bill passed.

Senate and House Still at Odds
The House of Representatives approved a permanent Internet tax moratorium in September of last year. House and Senate lawmakers will now meet in conference committee to reconcile the two. Rep. Christopher Cox (R-California) hopes “at least some elements of permanency” will find their way into the final legislation. “We’re very pleased that the Senate has produced a bill … and I’m confident that we can reconcile the two bills,” Cox said.

A spokesman for Congressman F. James Sensenbrenner, Jr. (R-Wisconsin) agreed. “While we’re pleased that the Senate has acted after allowing the moratorium to lapse for six months, the House bill is much stronger, and it’s something the President is solidly behind,” Sensenbrenner’s spokesman told the Associated Press on May 3.

On an April 26 trip to Minnesota, Bush reiterated his support for a permanent ban on Internet access taxes. Bush considers it “unacceptable that the U.S., which has 24 million high-speed Internet subscribers, ranks 10th in broadband availability among industrialized countries.

“Tenth is ten spots too low as far as I’m concerned,” Bush said. “We must not tax broadband access. If you want broadband access throughout society, Congress must ban taxes on access.”

Bush said the government must clear out the “underbrush of regulation” to encourage the private sector to invest in broadband technologies.

Some State and Local Officials Oppose Ban
Some state and local elected officials have expressed opposition to a ban on Internet access taxes, saying such a ban would put off-limits an important source of tax revenue.

“As cities struggle to balance their budgets and provide critical services such as homeland security, law enforcement, education and transportation, we strongly oppose federal preemptions that would erode our revenue base,” said Hempstead, New York Mayor James A. Garner, president of the U.S. Conference of Mayors, in February. “We also oppose permanent changes in tax rules on Internet access and telecommunications services at a time when technology is changing so rapidly. We must allow more time for technology to develop in this area before considering what should and what should not be taxed on a permanent basis,” he said.

Senator Dianne Feinstein (D-California) told the Sacramento Bee the ban was “opposed by more than 470 California cities as well as organized labor and firefighters,” who feared their “inability to tax Internet access could cost local jurisdictions as much as $836 million each year in potential revenue.” Feinstein nevertheless voted to extend the tax moratorium.

Industry Supports Tax Ban
Business leaders and telecom industry representatives do not agree with state and local officials who say they need more money.

Walter McCormick, president of the United States Telecom Association, considers a permanent ban on Internet access taxes to be a top priority. “Permanently shielding Internet access from traditional telecom taxation, which ranks right up there with cigarettes, alcohol, and gas taxes [as a tax target for state legislators], is a bold position with historic implications for the nation and its broadband competitiveness.”

“We don’t need more taxing options in New York State,” wrote Daniel B. Walsh, president of the Business Council of New York, in April 21 letters to New York’s two U.S. senators. “The Internet is not a luxury for businesses. It is a necessity for global competition. Adding costs to an essential service goes directly against what we are trying to do to bring down state and locally imposed costs.”

The recently expired moratorium on state and local Internet taxation was created in 1988 and extended in 2001. New York Senator Charles Schumer voted for the extension, and Senator Hillary Clinton voted against it. Both senators voted in favor of the moratorium extension the Senate passed in April.

The Information Technology Association of America (ITAA) on April 30 heralded the Senate vote as “a major step toward delivering on America’s digital opportunity, and as a significant contributing factor to a continued recovery in the technology industry.”

Harris N. Miller, president of ITAA, said the sponsors of the bill, Senators George Allen (R-Virginia) and Ron Wyden (D-Oregon), “and other lawmakers on both sides of the aisle have worked tirelessly over many months to do what is right for our industry and American consumers. Burdensome taxes on Internet access would stifle growth in the technology sector, when our national goal should be to expand the educational and economic opportunities that come with access to the Internet.”

Miller continued, “As the high-tech sector begins to recover, we’re seeing increased investment in IT products and services as well as the creation of new jobs. Additional taxes would hamper investment in broadband and only stifle the recovery that is already underway.”

John Skorburg is the managing editor of Budget & Tax News. His email address is [email protected].

For more information …

The Senate and House versions of the Internet access tax moratorium measure are available through PolicyBot™. Point your Web browser to, click on the PolicyBot™ icon, and search for documents #15042 (Senate version) and #15043 (House version).

The Web site of the Information Technology Association of America offers links to several policy statements on the moratorium. Point your Web browser to