House OKs four-year extension of Net tax ban

Legislators vote overwhelmingly to keep Internet connections tax-free for a finite timespan. But Republicans leaders say Democrats neglected the chance to make the tax ban permanent.

Editor's note: This story was updated at 12:18 p.m. PDT.

Most Americans should see tax-free Internet access bills for another four years if a proposal overwhelmingly approved by the U.S. House of Representatives becomes law.

By a 405-2 vote on Tuesday, the politicians threw their support behind a bill that would generally bar state and local governments from taxing Internet connections, including DSL (digital subscriber line), cable modem and BlackBerry-type wireless transmission services. The measure also prohibits "discriminatory" taxes that treat products sold on the Internet differently than those in brick-and-mortar stores--not to be confused with the separate issue of imposing sales taxes on goods bought online, which the bill does not address.

"By voting to continue the tax moratorium, the House will help promote innovation, affordable Internet access, and broadband services for American consumers and businesses," House Speaker Nancy Pelosi said in a statement Tuesday.

The vote tally may look straightforward, but vocal frustration from supporters of a permanent ban preceded the action. Because of a procedural decision by the House Democratic leadership, the bill was considered in a way that didn't allow for amendments--much to the chagrin of politicians like Reps. Bob Goodlatte (R-Va.) and Anna Eshoo (D-Calif.), who suggested that, given the chance, they would've easily had enough votes to pass an amendment making the moratorium permanent.

The current law, which dates back to 1998, is scheduled to expire on November 1. Any proposal to renew the law still has to pass the Senate, however, and the timetable for action there remains unclear. The Commerce Committee had planned to vote on that chamber's version of the bill a few weeks ago but canceled that activity because of last minute negotiations.

If and when that hurdle is cleared, though, President Bush has indicated he has no qualms about signing off on an extended--and even permanent--moratorium.

The four-year extension represents a sort of compromise between telecommunications and Internet companies and other American corporations, which have long angled for a permanent ban, and state and local officials, who have argued they need the freedom to revisit the possibility of an Internet access services tax on a periodic basis.

In response to concerns from state and local officials, the approved House version also attempts to clarify--and, in some cases, limit--the scope of the tax ban by stating that "voice, audio or video programming" delivered over the Internet (read: voice-over Internet protocol and IPTV services) are fair game for taxation. It also would give states the ability to tax Internet services if they had already enacted broad-based laws that affected Internet access or taxed a business' gross income or receipts.

The tax tussle has also become a political issue in recent months, as so many do, with Republican leaders repeatedly accusing their Democratic colleagues of sluggish action on the soon-to-expire law and of ignoring the tax-opposing will of American consumers and businesses. Republican leaders tried to extend the length of the ban by six or eight years and to make it permanent at a House Judiciary Committee meeting last week, but those attempts failed, largely along party lines.

Rep. Lamar Smith (R-Texas), that committee's Republican ranking member, expressed disappointment on Tuesday that the ban was not made permanent.

"Americans want and need a permanent ban on Internet access taxes," Smith in a statement. "Unfortunately for most Americans, the Democrat leadership's love for the tax man has overcome their common sense."

An eternal ban could've passed the House if Democratic leaders had chosen to bring it up for a vote, he added, referring to a separate bill, chiefly proposed by Silicon Valley's Eshoo, which enjoys support from 240 House members. (Whether the outcome Smith predicted actually would've been the case is another story--after all, at last week's House committee vote, a number of Democratic politicians who had previously co-sponsored the permanent ban voted against a trio of attempts to extend the latest four-year extension bill.)

Rep. Zoe Lofgren (D-Calif.), who backed a permanent--or at least lengthier--ban in the Judiciary committee vote, ultimately decided to vote for the four-year extension on Tuesday. The congresswoman, whose Silicon Valley constituents strongly support a permanent tax ban, did so because of concerns that even if the House passed a permanent ban, the same proposal would not pass muster in the Senate, she said on the House floor.

Eshoo, for her part, was one of two politicians who opted to vote, seemingly on principle, against the bill. "Very few bills have 240-plus bipartisan cosponsors," she said on the House floor before the vote. "I think that's the most eloquent statement toward making the moratorium permanent."

 

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