Senators don't want 1898 tax to hit Net

Two senators say a "temporary" tax to pay for the Spanish-American War should not apply to the Internet.

A tax originally created to pay for the Spanish-American War may not be extended to Internet connections after all.

Sen. George Allen on Monday announced a bill to prevent the IRS and the Treasury Department from levying a 3 percent federal excise tax to e-mail, broadband links or voice over Internet Protocol services.

"We didn't win the Spanish-American War to have our own government 'federales' burdening Americans with taxes on innovation over 100 years later," said Allen, a Republican from Virginia. Sen. Ron Wyden, an Oregon Democrat, also is backing the legislation.

In a surprise move last July, the IRS and Treasury Department said they might reinterpret the Spanish-American War tax on phone calls "to reflect changes in technology" used for voice communications. Then, in January, a congressional committee suggested extending the Spanish-American War tax to all data connections including Internet, satellite and cellular services.

Those two actions have alarmed technology companies, VoIP providers and conservative members of Congress opposed to tax increases. In an interview with CNET News.com published in March, Rep. Chris Cox, a California Republican, said that the Spanish-American War tax "ought to have been repealed over half a century ago" and it should not apply to the Internet.

CompTIA, a technology trade association, applauded Allen's legislation, which is called the Federal Internet Tax Prohibition Act. The "proposal will further promote pro-consumer, pro-competitive, productivity-enhancing Internet services for all Americans," CompTIA said Monday.

Congress enacted the so-called "luxury" excise tax at 1 cent a phone call back in 1898, when only a few thousand phone lines existed in the country. It was repealed in 1902, but was reimposed at 1 cent a call in 1914 to pay for World War I and eventually became permanent at a rate of 3 percent in 1990.

In May 2000, the House of Representatives voted 420 to 2 for the repeal, but the Democrat-controlled Senate never acted on the measure.

Allen's bill would amend the IRS code to say that any "Internet access service" would be immune from the Spanish-American War tax. That term is defined as applying to any service that lets users "access content, information, electronic mail, or other services offered over the Internet."

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