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State kills Net access tax

Massachusetts Gov. Paul Cellucci signs legislation to exempt Internet service providers from a five percent state sales tax.

Massachusetts Gov. Paul Cellucci signed legislation today to exempt Internet service providers from a five percent telecommunications sales tax.

As expected, the state has joined a nationwide movement to stop localities from tapping the budding online industry for revenue. The momentum is coming from high places. In July, the White House clearly stated that tax collectors should keep clear of Net access as part of the administration's plan for a robust electronic marketplace.

Earlier this month, Cellucci temporarily halted collection of the tax from ISPs. Today's passage of the state tax cut and budget bill makes the moratorium permanent and retroactive to 1991. ISPs or users who paid the tax over the past six years can apply for a rebate.

But the Massachusetts tax cut doesn't apply to items bought and sold online. States have been grappling with how to collect taxes on online sales, a problem they also face with mail-order purchases. With paper catalog sales, consumers must pay their home state's sales tax on purchases. Local officials say this rarely happens and are worried about losing even more sales tax revenue with the proliferation of e-commerce.

The elimination of the Net sales tax will save the state's taxpayers an estimated $8 million a year, according to the governor's office. "This moratorium sends the message to Internet providers that Massachusetts wants them to stay and that we will treat them well," Cellucci said when he introduced the moratorium at the Macworld Boston trade show August 7.

Cellucci's effort sidesteps legislation weaning through the state legislature. Democratic Rep. Dan Bosley introduced a bill to prohibit the state from charging ISPs a five percent telecommunications sales tax. Opponents of the tax said it was passed down to customers, who already pay the fee on their regular phone service. The state's former governor, William Weld, endorsed the bill before stepping down this year.

"Rather than get ourselves caught in all kinds of regulatory red tape, we wanted to get this through as soon as possible," Bosley said. His bill was eventually attached to the legislation passed today.

"Massachusetts is very big on computer technology and the Internet. We wanted to demonstrate that we're very friendly to people involved in the interactive medium," he added today.

While the states take stands on cybertaxes, a federal bill is on the table to halt taxation of Internet across the country.

The Internet Tax Freedom Act would bar local and state governments from imposing new taxes on online transactions until Congress sets up guidelines to do so. Proponents of the bill, such as the Association of Online Professionals, have been gearing up their efforts over the Congressional summer recess to see that the bill gets passed this year.

Introduced by Sen. Ron Wyden (D-Oregon) and Rep. Chris Cox (R-California), the legislation angers local officials who argue that taxation decisions should remain at the state and local levels.

In June, more than 300 mayors signed a resolution during the U.S. Conference of Mayors' national meeting in San Francisco stating their opposition to the Wyden-Cox legislation and any other national moratoria on state and local Net taxes.