Want CNET to notify you of price drops and the latest stories?

Net Tax Freedom Act closer

The Senate Commerce Committee clears the act, bringing closer a temporary ban on states and localities passing new taxes aimed at the online industry.

2 min read
The Internet Tax Freedom Act cleared the Senate Commerce Committee today, bringing one step closer to reality a temporary ban on states and localities passing new taxes specifically aimed at online access and e-commerce.

Introduced by Sen. Ron Wyden (D-Oregon) and Rep. Chris Cox (R-California), the final versions of each house's bill call for a six-year moratorium on creating taxes targeted at Internet service providers and the online industry. The Senate and House are expected to vote on the bills early next year, and then conference on any differences if the legislation passes on both sides.

"The Internet will be the business infrastructure of the 21st century," Wyden said in a statement. "To subject it to as many as 30,000 taxing jurisdictions applying different rules of taxation would be a mistake."

Many local lawmakers and the U.S. Conference of Mayors are firmly against the moratorium. A resolution signed by 315 mayors in June states that the Cox-Wyden legislation "would create a virtually unprecedented intrusion into inherently local affairs."

But the proposal's supporters, including the Clinton administration, say new taxes on electronic commerce or ISPs will stifle the potential of the growing online marketplace.

The industry managed to derail an amendment drafted by Sen. Ted Stevens (R-Alaska) that would have required the Federal Communications Commission to review its May decision on universal service, which mandated billions of dollars in discounts to schools and libraries for Net access. Stevens and Sen. Conrad Burns (R-Montana) have suggested that ISPs contribute to the universal service fund, which is now supported by state and federal governments as well as telecommunication companies.

But the trade associations that represent high-tech companies and online services will still try to change some definitions in the bills that lump ISPs in with telcos.

The online industry has continually fought legislation that defines it as the same as telcos when it comes to taxation and universal service. Yet when it comes to content regulations that could hold ISPs liable for their customers' activities, they argue that they are mere common carriers.

If Congress rejects the bill, the industry will likely ask states to pass their own moratoria.

"We have discussed the possibility that it may be more to our advantage to get uniform state legislation," Dave McClure, executive director of the Association for Online Professionals, said today.

Already, a group of state legislators that met at a three-day summit organized by the United States Internet Council in Colorado last weekend said it wants states to pass such legislation. Members of the American Legislative Exchange Council, who represented more than half of the 29 state legislatures present, unanimously approved the recommendation that the states adopt their own moratoria.