State senator wants tax-free Net

An Alabama state senator introduces a bill to exempt ISPs and users from sales and public utility taxes, part of a come-hither message to Net businesses.

CNET News staff
3 min read
The Internet has a friend in Alabama and his name is Sen. Tom Butler.

The Democratic state senator today introduced a bill to exempt Internet service providers and users from state, county, and municipal sales and public utility taxes.

Butler acted quickly to snuff out expected legislation to tax the Net like a public utility, as previously reported by CNET.

"Taxing the Internet would be like putting a toll on the bridge to the 21st century," Butler said today.

Butler's cause enjoys bipartisan support. Late this afternoon Alabama's Republican Governor Fob James also said in a news conference that he would not support taxation of the Internet, according to Jerry Baxley, executive director of the Internet Service Providers and Users Association (ISPUA) based in Montgomery, Alabama.

The group, which includes the state's approximately 51 independent ISPs, is working closely with Butler.

Last fall, the Department of Revenue ruled that a four-percent state utility tax for services such as electricity, water, and gas could be applied to ISPs, which would pass costs on to users. Sources say that legislation based on the ruling is still on its way.

Taxing the Net has become a big topic for legislatures and regulatory agencies. Across the country, states are deciding how to apply taxes; whom to tax; and on the flip side, how to give appealing tax incentives that will lure the budding ISP industry to their areas.

Butler represents a three-county district in Northern Alabama that is rich with high-tech companies. Thousands of his constituents are online, so protecting the Net is simply good politics.

"I'm sending a message that we're open for Internet business in this state," he said. "The users and providers are already paying charges on telephone-line usage and equipment. Any legislation to tax Net usage would be double taxation."

The expected legislation to tax ISPs is based on a November 22 ruling by H.E. Monroe, Jr., commissioner of the state's Revenue Department, sources say. He ruled that Alabama ISPs were subject to pay the four-percent utilities sales tax. The ruling states that the "[ISPs] flat-rate monthly charge and the hourly-usage fee would be subject to the tax."

Butler hopes to gain ground before the bill is introduced. He'll introduce another bill that calls for a commission to research how Alabama can use the Net to cut costs and provide services and information to the public on a daily basis.

ISPs are putting their weight behind Butler. "He has the support from his home district, most senators and legislators, and is a true friend of ISPs and users nationwide," said Baxley.

The state chapter of the AFL-CIO labor union has also come out in favor of the bill. The union said it sees a future in high-tech labor.

Alabama is watching how other states are treating ISPs.

The Florida Department of Revenue proposed extending its sales tax to ISPs last April, but the Florida Telecommunications Task Force recommended to the governor earlier this month that the Net not be taxed.

New York has declared itself a safe haven for ISPs as well. On January 11, 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.

The New York plan was proposed just two days after two federal legislators said they plan to introduce bills to keep the Net tax-free. Sen. Ron Wyden (D-Oregon) and Rep. Chris Cox (R-California) argued their bill would prohibit new state and local sales and usage taxes for the Net.

Also experimenting with ISP taxing systems is Fort Collins, Colorado, which already applies a municipal sales tax to local ISPs based within city limits. Tacoma, Washington, dropped its plan last fall to tax all ISPs that offer access within the city limits, including national providers.