Bills aim to protect Net from taxes

Congress wants to protect the Internet from taxation without representation.

Sen. Ron Wyden (D-Oregon) and Rep. Chris Cox (D-California) are expected to introduce legislation Thursday to keep the Net free of state, local, sales, and usage taxes. A separate bill intended to shield the Net from federal taxes is already awaiting consideration by the House Ways and Means Committee.

The question of whether to tax the Net is a hot topic for local governments and regulatory agencies across the country. At the state level, many are trying to determine how to make money off the industry by applying various levies such as sales taxes and usage fees. Conversely, others are trying to lure new businesses to their regions by offering tax incentives or exemptions.

Some members of Congress want to promote the growth of the Internet by protecting it from the Internal Revenue Service. Internet service providers say they shouldn't be subjected to new taxes because they already pay telecommunications fees.

One bill, introduced last week by Representative Dave Weldon (R-Florida), would amend the IRS Code to exempt Internet access and online service fees from taxes related to federal trade.

Such taxes could be used to reap federal revenue on each connection offered by an ISP or on their subscription rates. The bill would prevent federal agencies or departments, such as the IRS, from funding studies to explore potential revenue streams related to Net taxation.

"We must not allow this budding industry to be smothered by federal taxation," Weldon said on the House floor last week. "Let us here resolve not to interfere with a technological phenomenon which has done so much to inform and educate so many millions of people."

Weldon introduced the Tax-Free Internet Act after a hearing the report of a White House task force on the government's role regarding the Internet. The head of the task force, Ira Magaziner, who is also the administration's spokesman on e-commerce, has already pledged that no special taxes would be applied to online transactions.

But Weldon says he doesn't want to take any chances. His home state has organized its own strenuous effort to protect the Net from taxes. In January, a state task force recommended that access to the Internet remained untaxed and a bill is now making its way through the Florida senate to prevent local and state agencies from imposing such taxes.

Not surprisingly, Weldon's plan has gained the support of major ISPs like America Online.

"AOL strongly supports your policy efforts and those in the White House and the Treasury Department to make the Internet a global tax-free zone. Any new tax could threaten the continued growth of this global medium," said Ellen Fishbein, AOL's assistant general counsel, in a statement.

With national leaders coming out against new taxes on the Net, some states and local governments have abandoned plans to apply taxes. Tacoma, Washington, dropped its plan last fall to tax all ISPs that offer access within the city limits.

Others are still pressing forward, however. Fort Collins, Colorado, already applies a municipal sales tax to local ISPs based within city limits. The Iowa and Wisconsin department of revenues have deemed taxable both set-up fees for dial-up services and access fees charged by ISPs within the state.