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New Hampshire: E-mail free or die...for now

Tax collectors say the Granite State can live up to its libertarian motto: They won't target Internet phone calls, chat rooms, Web mail and instant messaging. Yet.

New Hampshire's tax commissioner has temporarily abandoned plans to tax a broad swath of online services, including Internet phone calls, chat rooms, Web mail and instant messaging.

A representative of the Department of Revenue Administration said Tuesday that after encountering criticism of the proposal at a public hearing the day before, Commissioner G. Philip Blatsos had decided to leave any Internet tax decisions to the state legislature.

"Because this is a tremendously important policy issue, rather than go through the rulemaking process at this point, we should defer to the legislative study committee," said Val Berghaus, an assistant to Blatsos. "At the request of legislative leaders of the Ways and Means committee, (Blatsos) is going to defer to that request." The legislative committee is scheduled to convene Aug. 4.

New Hampshire's now-postponed plans to extend an existing 7 percent tax on "two-way communications services" come as other states are eyeing the Internet as a potentially lucrative source of revenue.

Vonage is fighting fees and licensing requirements from New York, and California and New York are trying to collect taxes on out-of-state orders made over the Internet. Other states warn that if Americans switch to cheaper--and less-taxed--voice over Internet Protocol (VoIP) service, funding for grants aimed at providing poorer and rural areas with cheap analog service could be jeopardized.

New Hampshire, which boasts a state motto of "live free or die," requires its tax agency to revisit the tax code every eight years to see whether "there are any changes that need to be made," Berghaus said.

The Department of Revenue Administration had planned two major revisions to what would be encompassed by the 7 percent telecommunications tax. One would have covered any person or company who provides "two-way communications through the use of the Internet" including via DSL, ISDN, wireless broadband, T-1 connections, T-3 connections, or VoIP connections. The second would have covered voice mail, chat rooms, Web mail and instant messaging.

New Hampshire state Rep. Kurt Roessner, a Republican, said the legislative committee plans to look at the telecommunications taxes in general and probably will not target the Internet in a report due Nov 1. "Right now, I'm not aware of any intent on anyone's part to extend the New Hampshire communications services tax toward any Internet service," Roessner said Tuesday. "I'm not aware of any such thing."

Roessner said he was puzzled by the tax agency's surprise move to focus on Web and other services, but was gratified it deferred to the legislature. "I don't know why they announced their rulemaking proposal when they did," he said. "I don't even want to speculate about how or why that happened. I think that once the reaction that was generated was received and they were made aware of the impending study committee, they (backed off)."

"It's another example of states who have fiscal problems trying to turn this into who use technology," said Steve DelBianco, executive director of NetChoice, which represents e-commerce firms. "One wonders what they were thinking when talking about a 7 percent tax on a service that's free like instant messaging or VoIP. How do you tax a service that's free?"

A federal ban restricting states from levying taxes on Internet access expired last fall, and ongoing squabbling over details of an extension has prevented Congress from renewing it. But the federal restrictions--if extended in their earlier form--include a grandfather clause, which New Hampshire tax officials believe provides a loophole that lets them target the Internet.