Taxpayer Group Blasts Effort to Kill Internet Tax Moratorium

Published January 1, 2004

The U.S. Senate adjourned for the year without voting on S. 150, the Internet Tax Non-Discrimination Act. Noting Internet taxes impose an “immense burden” on the economy, Americans for Tax Reform (ATR) strongly opposed the efforts of two Senators to kill S. 150 and allow states to tax the Internet.

“Now that Senators Lamar Alexander and George Voinovich have succeeded in killing the moratorium on Internet taxes, clearly the Senators are more concerned about protecting tax collectors instead of taxpayers,” said Grover Norquist, president of ATR. “Their actions are preventing the permanent elimination of taxes on Internet access, double-taxation of a product or service bought over the Internet, and discriminatory taxes that treat Internet purchases differently from other types of purchases.”

According to the Toledo Blade, “George Voinovich (R-Ohio) urged Congress to pass a compromise that would extend the moratorium on Internet taxes without further devastating the already cash-strapped budgets of states and localities.” Under the Voinovich proposal, the five-year-old moratorium on Internet taxes, which expired November 1, would be extended for another two years–and not banned permanently. The compromise stalled, as did the original bill.

The compromise was a direct effort to block legislation, recently passed by the U.S. House of Representatives, that would permanently ban states and localities from imposing Internet taxes. Supporters of the permanent ban, sponsored by Sen. George Allen (R-Virginia) and Rep. Christopher Cox (R-California), say it is necessary to keep “Internet access affordable for all Americans.”

Voinovich, who coauthored the original Internet tax moratorium, may agree that Internet access should not be taxed. But he contends the Allen-Cox legislation contains a too-broad definition of Internet access that would prevent states from taxing types of telecommunications services that currently can be taxed, including “bundled” telephone taxes and fees.

“We are not here to tax e-mail,” Voinovich said at a recent press conference. “We strongly believe this fair and reasonable compromise expands the original moratorium to help level the playing field for all Internet service providers without causing severe budget shortages in state and local governments.”

But Allen said in a statement that extending the moratorium temporarily, as the compromise measure would do, “is just another excuse to provide the opportunity for states to begin taxing Internet access.” Such taxes could raise the cost of a high-speed Internet connection by $10 to $15 a month, he said.

“Such a proposal would … further exacerbate the digital divide,” Allen added.

In 1998, and more recently in 2001, Congress acted to put an end to taxes that single out the Internet. The tax moratorium expired on November 1 and, because the Senate adjourned without passing replacement legislation, Americans now face the prospect of paying taxes on everything from email to instant messages and filters for spam or junk email. Especially hurt by such taxes would be schools, libraries, hospitals, and families who use the Internet for research, education, and communication.

“By ensuring that the Internet remains tax-free, individuals and small businesses that could not afford access to the Internet have begun to share in the wealth of opportunities that the World Wide Web has offered,” said Norquist. “However, certain Senators have decided to allow states to implement Internet taxes that are complicated, unfair, and an immense burden on the economy and harm future growth and innovation.

“Supporters of the permanent moratorium have worked tirelessly to address the concerns expressed by the Senators. However, these individuals have used these negotiations to stall passage of a permanent ban on Internet access taxes in order to achieve their true desire and tax the Internet,” Norquist said.

Jonathan Collegio is director of communications for Americans for Tax Reform. His email address is [email protected].