Senate debates Net access tax

A vote later this week is expected to determine the extent of taxes on Americans' Internet connections. Opponents warn that additional taxes could cripple the Net.

Declan McCullagh
Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
2 min read
The U.S. Senate on Monday kicked off what promises to be an all-encompassing debate this week that will decide how high taxes will be on Americans' Internet connections.

By a 74-11 vote, senators agreed to begin a process climaxing in a final vote expected later this week over whether to renew a lapsed ban that would prevent state and local governments from levying additional taxes on dial-up, DSL (digital subscriber line), cable modem, wireless or satellite access to the Internet.

In floor speeches that lasted about two hours, supporters of a permanent tax ban warned that any other option would cripple the Internet. This vote "will determine to some extent whether our e-mail, spam filters, Google searches, Web sites and instant messages are singled out for discriminatory taxes," Sen. Ron Wyden, D-Ore., said. "I cannot believe the Senate would subject e-mail, BlackBerrys, a variety of technologies to discriminatory taxes."

While senators were making speeches in public, their aides were fiercely negotiating potential compromises in private. Sen. John McCain, R-Ariz., is trying to broker a deal that would renew the tax moratorium for four years, instead of making it permanent, and tweak the definitions so states could tax voice-over-Internet Protocol (VoIP) services.

But a spokeswoman for Sen. Lamar Alexander, R-Tenn., said in an interview that McCain's proposal probably did not satisfy a group of senators who have warned that state and local governments could lose billions in tax revenue if prevented from taxing Internet access.

"As telephone calls move to the Internet, if the definition of Internet access is exempt from state and local governments collecting revenue, then those telephone calls would be exempt," said Alexander spokeswoman Alexia Poe. "We saw actual language today (from McCain's aides), and from what we can tell it doesn't look a whole lot like a compromise."

Alexander is a co-sponsor of competing legislation that would extend the temporary moratorium on taxation, which expired Nov. 1, through the end of 2005. Now that the Internet businesses are successful, Alexander said, "they should pay the same sales taxes and the same kind of business taxes that everyone else pays."

President Bush entered the debate Monday by backing a broad moratorium. "Broadband technology must be affordable," Bush said in a speech in Minneapolis. "In order to make sure it gets spread to all corners of the country, it must be affordable. We must not tax broadband access. If you want broadband access throughout the society, Congress must ban taxes on access."

The heated debate in the Senate marks a 180-degree turn from the measure's reception in the U.S. House of Representatives. Invoking a process designed for noncontroversial legislation, the House approved a permanent ban by a voice vote Sept. 17.