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Senate to ponder permanent Net access tax ban

It will consider as early as next week a permanent ban on taxing people's Internet access bills, a measure that has sparked concern among state tax regulators.

The U.S. Senate as early as next week will consider a permanent ban on taxing people's Internet access bills, a measure that has sparked concern among state tax regulators.

The bill would make permanent a moratorium on access taxes, called the Internet Tax Freedom Act, that was first passed in 1998 and then extended in 2001. If the bill's authors, Sens. Ron Wyden, D-Ore., and George Allen, R-Va., shepherd its passage into law, it would mean states would be barred permanently from levying taxes on monthly Internet access charges and might extend into other Internet-related services.

State tax officials' concerns do not have to do with the barring of taxes for Internet access. Rather, they fear that the new bill's language could expand into other Internet services, most notably voice calls.

"What happens is the new proposal will open an exception to eventually let (the telecom industry) walk through it when it converts to Internet technology," said Dan Bucks, executive director of the Multistate Tax Commission.


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What this means for Internet users is no new taxes. But the implications open the door to greater disagreements on how and whether to regulate future businesses on the Internet.

The bill's expanded provisions have sparked a debate that affects regulators, phone companies, Internet companies and the courts. It's the question of how to regulate Internet and telecommunications services in an age when the lines between the two are blurring.

Baby Bells--such as Verizon Communications, SBC Communications, Qwest Communications International and BellSouth--are currently regulated by the government for services carried on their phone lines, such as voice and broadband Internet. However, cable companies such as Comcast and Cox Communications, which are not regulated, are beginning to show traction in gaining phone subscribers who use their coaxial networks.

The Federal Communications Commission considers cable networks to be information services, and therefore doesn't regulate them, but it regulates the Bells because they are considered telecommunications services.

The Bells have argued that their copper networks are under competitive pressure because they are forced to lease lines to third parties, while the cable companies are not. Cable companies have argued that the government should not regulate their networks because they were the result of private reinvestment.

In a nutshell, information services and telecommunications services are beginning to look alike, leaving many parties trying to figure out the benefits and consequences of an unregulated Internet.

For now, all parties agree that the status quo has helped the Internet and e-commerce flourish in the United States. The question is whether this laissez faire era will eventually hurt states that rely on critical tax revenue from the phone carriers.

"The states have yet to demonstrate that they've been hurt by their inability to levy unfair and discriminatory taxes," said Carol Guthrie, a spokeswoman for Wyden. "It's a law that works for the Internet and for consumers, and Sen. Wyden wants to see it made permanent."