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Tacoma may reverse ISP tax

The mayor of Tacoma, Washington, says he has the backing of the City Council to repeal a citywide tax on Internet service providers that became effective in March.

The mayor of Tacoma, Washington, said this morning that he has the backing of the City Council to repeal a citywide tax on Internet service providers that became effective in March.

Mayor Brian Ebersole will introduce an ordinance to repeal the tax at a council meeting tomorrow night.

Internet service providers nationally are closely watching the developments in Tacoma, because it is one in a handful of municipalities throughout the country to have begun taxing ISPs.

But Ebersole said the tax in Tacoma came at the wrong time. At a time when the community of 185,000 is trying to give high-tech businesses a tax break, Tacoma's city staff members took it upon themselves to apply a local telecommunications tax law to ISPs.

Ironically, it was an ISP that prompted Duston Jensen, manager of the city's tax and license division to impose the new tax. "We were asked by an ISP as to how to report taxes," Jensen said. "We looked at the definitions we had available. It was our determination we would tax them under the telecommunications regulations."

In fairness, Jensen then sent out notices to service providers across the country informing them they would have to pay a 6 percent tax on every Tacoma customer they sign up.

That did not sit well with Ebersole, who found out about the tax only after it became effective.

"I'm going to lead the charge to do away with it and I predict we'll be successful. This is not something you want to be first in the nation on, or even close to first," he said. "I think it's an inappropriate application of the existing tax law, and I think it's bad for the city of Tacoma's business climate."

The Association of Online Professionals, an ISP trade group, has opposed taxes on service providers for the same reason: that taxes have a chilling effect on burgeoning ISPs, said Dave McClure, executive director. About half a dozen states and about four municipalities have either proposed or instituted taxes on ISPs, he said.

The ISP association is resigned to the fact that an increasing number of municipalities will impose the taxes, especially as they struggle to recover tax money they've lost from decreasing long distance telephone rates, McClure said. "What better way to recover lost telephone revenues than from new telephone revenues?"

"Ultimately, it is likely that most ISPs will be taxed at the state or local level, or both," he said. "In some communities and states they are inevitable. I don't think death is OK, but there isn't any way around it."

Jensen estimated that the tax, if imposed, would bring in $250,000 next year, boosting its $120 million budget. To date, a handful of Tacoma ISPs have paid the tax.

Ebersole said that if the ordinance is repealed, those ISPs probably will get refunds.