Massachusetts may ax ISP tax

Massachusetts legislators could vote to exempt Internet service providers from a sales tax by early next week, adding muscle to the White House's e-commerce agenda.

Rep. Dan Bosley's (D-North Adams) bill would prohibit the state from charging ISPs a 5 percent telecommunications sales tax. Opponents of the tax say it will be passed down to customers, who already pay the fee on their regular phone service.

Backers of the tax repeal, including Massachusetts Gov. William Weld, say flooding the online industry with new costs will only kill the market place's potential. The Clinton administration's global electronic commerce policy, released last week, calls for no new local or state taxes on the Net for the same reason.

Bosley's position may be growing in popularity, but the state House Ways and Means Committee must approve the bill for a floor vote before July 15--the last day of the legislative session.

"This charge is a tremendous burden on small ISPs, and would essentially double tax customers." Bosley said today.

But the bill won't pass without a hitch. Local government officials across the country are fighting such measures, fearing they'll lose their right to harness revenue from the budding industry.

Already hundreds of mayors have come out against Clinton's plan and federal legislation such as the Internet Tax Freedom Act, which aims to temporarily block municipalities from applying new taxes to the Net.

Bosley acknowledged that some officials in his state also worry they will lose tax revenue.

"We will more than make up the tax revenues by the increased business activity in this sector here in Massachusetts," he added.

Other states have tried without success to safeguard ISPs from taxes.

In May, an Alabama Senate bill to shield Internet service providers from additional taxes died before the House could vote on the proposal. The legislation excused ISPs from paying state, county, and municipal sales, as well as public utility taxes.

Tacoma, Washington, also dropped its plan last fall to tax all ISPs that offer access within the city limits, including national providers.

Some plans, however, take Massachusetts' hands-off approach.

The Florida Department of Revenue proposed extending its sales tax to ISPs last April. But the Florida Telecommunications Task Force said "no way," and the governor agreed. In January, New York Gov. George E. Pataki directed the State Department of Taxation and Finance to follow a state report that recommends sales-tax exemptions for Internet access providers.