| 
 2/12. Sen. Lamar Alexander 
(R-TN) and others introduced
S 2084, 
the "Internet Tax Ban Extension and Improvement Act". The title of the bill is 
not descriptive of its content. The bill would nominally extend the Internet Tax 
Freedom Act through November 1, 2005. However, it would also allow a range 
of new taxes that could be imposed by state and local governments. 
The original moratorium, contained in the Internet Tax Freedom Act (ITFA), 
was passed in late 1998. It was extended in 2001. The extended moratorium 
expired on November 1, 2003. 
 | 
 
 |  
 | Sen. Lamar 
  Alexander |  
 |  |  
 
The original cosponsors of S 2084 are 
Sen. Tom Carper (D-DE), 
Sen. Byron Dorgan (D-ND), 
Sen. Diane Feinstein (D-CA), 
Sen. Bob Graham (D-FL),
Sen. Ernest Hollings (D-SC), 
Sen. Kay Hutchison (R-TX),
Sen. Daniel Inouye (D-HI), 
Sen. Frank Lautenberg 
(D-NJ), Sen. Jay Rockefeller (D-WV), and 
Sen. George Voinovich (R-OH). Many 
are veterans of prior battles to defeat, weaken, and shorten the term of the 
internet tax moratorium. 
Sen. Alexander's bill was referred to the
Senate Commerce Committee, which 
has already passed a bill to extend the tax moratorium. 
On July 31, 2003, the Senate 
Commerce Committee amended and approved
S 150, the 
"Internet Tax Non-discrimination Act of 2003" by voice vote. See,
amendment in the nature of a substitute [4 pages in PDF]. See also story 
titled "Senate 
Commerce Committee Approves Bill to Extend Internet Tax Moratorium" in
TLJ Daily E-Mail 
Alert No. 709, August 1, 2003. 
In addition, on September 17, 2003, the full House passed HR 49, its version 
of the "Internet Tax Non-discrimination Act". 
In summary, the original Internet Tax Freedom Act (ITFA) imposed a temporary 
ban on taxes on internet access, and multiple or discriminatory taxes on 
e-commerce, subject to a grandfather clause. It expired in 2001. But, the 
Congress passed the Internet Non-Discrimination Act (INDA) in late 2001. It 
extended the ban of the ITFA through November 1, 2003. This extension has expired. 
In the current Congress, the House version of the extension bill, which is 
again titled the "Internet Non-Discrimination Act" makes the ban 
of the ITFA permanent. It also eliminates the grandfather clause. Finally, it 
provides that the moratorium applies to telecommunications services, "to the 
extent such services are used to provide Internet access". 
In the current Congress, the Senate version of the INDA that was passed by 
the Senate Commerce Committee makes the ban of the ITFA permanent, sunsets 
the grandfather language of the ITFA after October 1, 2006, provides that the 
moratorium applies to telecommunications services "to the extent such services 
are used to provide Internet access", and adds an exemption for any taxes 
imposed to fund universal service subsidies. 
1998 ITFA. The Congress passed the original Internet Tax Freedom Act (ITFA) 
in the closing days of the 105th Congress. The Senate version of the bill,
S 442 ES 
(105th), was ultimately added to the huge Omnibus Appropriation Bill, which was 
passed by both houses, and signed by former President 
Clinton in October of 1998. It became Public Law No. 105-277. 
 Rep. Chris Cox (R-CA) (at left) sponsored the 
House version of the bill. (He is also the sponsor of HR 49 in the current Congress).
Sen. Ron Wyden (D-OR) sponsored the 
Senate bill. Sen. Wyden has throughout been one of the leading proponents of 
creating and maintaining the moratorium. 
The ITFA's moratorium employs short and simple terms. The key language 
(which is at Section 1101(a) of the ITFA, and codified at 47 U.S.C. 151 note) provides 
as follows: 
  "(a) Moratorium.--No State or political subdivision thereof shall 
impose any of the following taxes during the period beginning on October 1, 
1998, and ending 3 years after the date of the enactment of this Act-- 
    (1) taxes on Internet access, unless such tax was generally 
imposed and actually enforced prior to October 1, 1998; and 
    (2) multiple or discriminatory taxes on electronic commerce." 
Thus, it is a moratorium on taxes on internet access, and multiple or 
discriminatory taxes on e-commerce; it lasts for three years; and it 
grandfathers existing taxes that were "generally imposed and actually 
enforced". 
The ITFA also established the "Advisory Commission on Electronic 
Commerce" to write a report to Congress. This Commission, which came to be known 
as the Gilmore Commission, completed its study. This is not an issue in the current 
debate. 
Finally, the ITFA contains some exceptions and definitions that are relevant 
to the current debate. 
Subsection 1101(e) lists exceptions to the moratorium. Subsection 1101(e)(3) 
contains definitions. Subsection 1101(e)(3)(D) defines "Internet access service" 
as follows: "The term 'Internet access service' means a service that enables 
users to access content, information, electronic mail, or other services offered 
over the Internet and may also include access to proprietary content, 
information, and other services as part of a package of services offered to 
consumers. Such term does not include telecommunications services." 
Section 1104 is the general definitions section. Subsection 1104(5) defines 
"Internet access" as follows: "The term 'Internet access' means a service 
that enables users to access content, information, electronic mail, or other services 
offered over the Internet, and may also include access to proprietary content, 
information, and other services as part of a package of services offered to 
users. Such term does not include telecommunications services." 
Extension in 2001. Rep. Cox introduced
HR 1552, 
the "Internet Non-Discrimination Act" (INDA) of 2001, on April 24, 2001, in the 
107th Congress. The House passed the bill on October 16, 2001. The Senate passed 
the bill on November 15, 2001. President Bush signed the bill on November 28, 
2001. It became Public Law No. 107-75. 
It is a remarkably short and simple bill. Its only substantive language 
provides that "Section 1101(a) of the Internet Tax Freedom Act (47 U.S.C. 151 
note) is amended by striking `3 years after the date of the enactment of this 
Act' and inserting `on November 1, 2003'." 
That is, all that it did was extend the duration of the moratorium. 
And of course, November 1, 2003 has passed. There is no moratorium in 
effect. 
HR 49. The House has passed a bill extending the moratorium. 
Rep. Cox introduced the bill on
HR 49, the 
"Internet Tax Nondiscrimination Act", on January 7, 2003. See, story titled 
"Rep. Cox and Sen. Wyden Introduce Bill to Make Permanent Net Tax Ban" in
TLJ Daily E-Mail 
Alert No. 580, January 10, 2003. 
The House Judiciary Committee's 
Subcommittee on Commercial and Administrative Law held a hearing on April 1, 2003. 
See, story titled "House Subcommittee Holds Hearing on Bill to Make Internet Tax 
Moratorium Permanent" in
TLJ Daily E-Mail 
Alert No. 635, April 2, 2003. 
The Subcommittee approved the bill on May 22, 2003. The full Committee 
amended and approved the bill on July 16, 2003. See,
story 
titled "House Judiciary Committee Approves Internet Tax Bill", also 
published in TLJ 
Daily E-Mail Alert No. 700, July 17, 2003. 
The full House passed the bill on September 17, 2003. 
The key language of HR 49 amends Section 1101(a) of the ITFA to read as 
follows: 
"(a) MORATORIUM- No State or political subdivision thereof may impose any of 
the following taxes: 
(1) Taxes on Internet access. 
(2) Multiple or discriminatory taxes on electronic commerce." 
That is, is leaves unchanged the taxes that are banned. It continues the 
moratorium on taxes on internet access, and multiple and discriminatory taxes on 
e-commerce. However, it deletes the grandfather language (thus eliminating 
grandfathering of taxes that were "generally imposed and actually enforced" in 
1998). It also deletes any reference to a termination of the moratorium (thus 
making it permanent). The bill also deletes another reference to grandfathering 
that was included in the original ITFA. 
There is one other significant provision in HR 49. It is as follows: 
"CLARIFICATION- The second sentence of section 1104(5), and the second sentence 
of section 1101(e)(3)(D), of the Internet Tax Freedom Act (47 U.S.C. 151 note) 
are each amended by inserting `, except to the extent such services are used to 
provide Internet access' before the period." 
 This was added 
to the bill during the House Judiciary Committee markup on July 16, 2003. 
Rep. Mel Watt (D-NC) (at left) 
offered the amendment. It provides that the moratorium applies to 
telecommunications services, "to the extent such services are used to provide 
Internet access", thus clarifying that the ban on internet access taxes extends 
to broadband DSL and wireless services provided by phone companies or others. 
That is, the 1998 ITFA imposed a moratorium on taxes on internet access, 
but, the ITFA's definition of "internet access" excluded 
"telecommunications services". Rep. Watt (at left) stated that some states 
currently impose a tax on DSL service when it is sold as part of a package with phone 
service. Thus, internet access, when provided by DSL, is taxed, while other technologies 
for providing broadband internet access are not taxed. He stated that his amendment would 
clarify that DSL service is covered by the ban on internet access taxes. 
S 150. Sen. George Allen (R-VA) introduced 
S 150, also 
titled the "Internet Tax Nondiscrimination Act", on January 13, 2003. The Senate 
Commerce Committee, which has jurisdiction over this issue, held a hearing on 
July 16, 2003. See, story titled "Senate Commerce Committee Holds Hearing on 
Internet Tax Bill" in
TLJ Daily E-Mail 
Alert No. 700, July 17, 2003. 
On July 31, 2003, the Committee amended and passed the bill. See, story 
titled "Senate Commerce Committee Approves Bill to Extend Internet Tax 
Moratorium" in TLJ 
Daily E-Mail Alert No. 709, August 1, 2003. However, the full Senate has 
not passed either this bill, or the House version. 
S 150, as amended by the Senate Commerce Committee, permanently extends the 
moratorium on internet access taxes and multiple and discriminatory taxes on e-commerce. 
S 150 expands the scope of the grandfather provision, and sunsets it after 
three years. 
S 150 also contains Rep. Watts' language providing that the moratorium 
applies to telecommunications services "to the extent such services are used to 
provide Internet access". 
Finally, S 150 contains an exception for taxes collected to fund universal 
service subsidies. It provides that "Nothing in the Internet Tax Freedom Act 
shall prevent the imposition or collection of any fees or charges used to 
preserve and advance Federal universal service or similar State programs 
authorized by section 254 of the Communications Act of 1934." 
There is also a related bill,
S 52, 
also titled the "Internet Tax Nondiscrimination Act", which was introduced by 
Sen. Wyden on January 7, 2003. However, S 150 has become the vehicle for 
extending the moratorium. Nevertheless, S 150 is often referred to as the Allen 
Wyden bill, even though Sen. Wyden is technically not a cosponsor of S 150. 
S 2084. Sen. Alexander's just introduced bill,
S 2084, 
is titled the "Internet Tax Ban Extension and Improvement Act". It is an 
internet tax ban extension to the extent that it extends the ban contained in 
Section 1101 of the 1998 ITFA to November 1, 2005. The extension would also be 
retroactive, back to November 1, 2003, when the ban expired. Thus, there would 
be no gaps in the application of the ban. 
However, the rest of this detailed bill creates exceptions, exclusions, and 
other opportunities for state and local governments to impose taxes that the 
original ban was passed to prevent. 
S 2084 contains language that is related to Rep. Watts' amendment. However, 
it drafted more narrowly to allow more activities to fall outside of the 
moratorium on internet access taxes. HR 49 and S 150 both provide that the 
moratorium applies to telecommunications services "to the extent such services 
are used to provide Internet access". S 2084 provides that the moratorium does 
not apply to "telecommunications services, except to the extent such services 
are purchased, used, or sold by an Internet access provider to connect a 
purchaser of Internet access to the Internet access provider". 
S 2084 deletes the grandfather language from 1101(a), only to add a pair of far broader 
grandfather clauses in a newly created Section 1104. 
The ITFA grandfathered taxes on internet access that were "generally imposed 
and actually enforced" in 1998. S 2084 preserves this clause but then adds 
qualifying language. 
It provides, in part, that "Section 1101(a) does not apply to a tax on 
Internet access ... that was generally imposed and actually enforced prior to 
October 1, 1998, if, before that date, the tax was authorized by statute and 
either -- (1) a provider of Internet access services had a reasonable 
opportunity to know by virtue of a rule or other public proclamation made by the 
appropriate administrative agency of the State or political subdivision thereof, 
that such agency has interpreted and applied such tax to Internet access 
services; or (2) a State or political subdivision thereof generally collected 
such tax on charges for Internet access." 
This section of S 2084 lacks clarity. But, it lends itself to the 
interpretation that a state or local government may impose a tax on internet access, 
in the absence of having actually collected the tax, or even having promulgated 
a rule or ordinance, merely if it can show that it had articulated its 
interpretation that it could impose the tax. Evidence of this interpretation 
could be satisfied by any "public proclamation" -- which raises the 
question of what is a "public proclamation". 
S 150 contains similar language.
This taxing authority goes beyond the notion of grandfathering. 
S 2084 also carves out three exceptions to the moratorium. First, like 
S 150, it contains an exception for taxes imposed for the purpose of providing 
universal support subsidies. But, it adds two exceptions not contained in 
S 150. 
It creates an exception for taxes imposed for the purposes of funding 911 or 
E911 programs. 
It may also be relevant that some states have a history of diverting E911 
fees to fund other government programs. Sen. 
Conrad Burns (R-MT) and Sen. Hillary 
Clinton (D-NY) introduced
S 1250, the 
"Enhanced 911 Emergency Communications Act of 2003 " in July of 2003 to, among 
other things, address this diversion. It would also require the
Federal Communications Commission (FCC) to 
review twice a year fees charged to customers for enhancing 911 services. States 
would be required to certify that no E911 fees are being used for other 
purposes. The FCC would be required to notify Congress of states that divert 
E911 funds. Finally, the NTIA would be required to withhold grant funds to 
states that are found by the FCC to divert E911 funds. 
The Senate Commerce Committee report on this bill states that 
"Currently, over 40 States have established some type of wireless 
fee or surcharge on consumers' mobile phone bills to fund, either in whole or in 
part, PSAP upgrades for wireless E-911 service. In the States relying on monthly 
surcharges, subscribers' fees range from 20 cents to $2 per month, with the 
average about 60 cents per month." It adds that "Recently, 
State lawmakers and administrators have begun investigating the use of E-911 
funds, and have discovered instances in which E-911 funds have been used for 
purposes other than the provision of E-911 service. Observers claim as many as 
11 States have been `raiding' their collected E-911 funds to satisfy other State 
obligations." See, 
Senate 
Report 108-130 
S 2084 also creates exceptions for any taxes levied on "net income, capital 
stock, net worth, or property value". 
That is, state and local governments could tax the internet access providers, 
who would then pass on this cost to their customers through higher prices. The 
net effect on consumers would be similar to a tax their internet access. 
S 2084 also contains a section titled "Accounting Rule" which facilitates the 
ability of state and local governments to impose taxes on bundled service 
offerings that include internet access. It states that "If charges for Internet 
access are aggregated with and not separately stated from charges for 
telecommunications services or other charges that are subject to taxation, then 
the charges for Internet access may be subject to taxation unless the Internet 
access provider can reasonably identify the charges for Internet access from its 
books and records kept in the regular course of business." This section restates 
the delineation of telecommunications and internet access: "The term `charges 
for telecommunications services' means all charges for telecommunications 
services except to the extent such services are purchased, used, or sold by an 
Internet access provider to connect a purchaser of Internet access to the 
Internet access provider." 
Sen. Rockefeller, an original cosponsor of the bill, stated that Sen. Allen 
and Sen. Wyden "have proposed legislation that would permanently bar States and 
cities from taxing Internet access, and they have defined the service broadly 
that many experts believe it will undermine some telecommunications taxes on 
which States currently depend. I am not interested in providing enormous tax 
breaks to the telecommunications industry, and so I oppose their approach. Taxes 
that businesses currently pay to access the Internet backbone are reasonable 
costs of doing business. I hope that my colleagues will not be intimidated by 
claims that those of us who oppose tax breaks for telecommunications companies 
actually want to tax people's e-mails." See, Congressional Record, 
February 12, 2004, at page S1295. 
Reaction to S 2084. Software & 
Information Industry Association (SIIA) President Ken Wasch stated in a
release 
that "Contradicting its name, this new legislation represents a means to 
empower states to not only begin taxing Internet access, but to do it in a way 
that will leave consumers wondering what hit them ... This 
legislation makes a mockery of tax and technological neutrality, and it denies 
consumers a real choice in high speed access to the Internet." 
Wasch continued: "Let's be clear: This legislation would create a 
regime whereby taxes are applied to Internet access services and email. In fact, these 
taxes would be applied on the back-end, so it is the worst kind of taxation. If this 
legislation were enacted, consumers could expect their bill for DSL and wireless 
high-speed Internet access to increase significantly. Consumers could be looking 
at billions of dollars in taxes levied on Internet access through a back door." 
"The legislation's sponsor, Senator Lamar Alexander, stated explicitly last 
year that he supports taxation of Internet access. This legislation seems to 
underscore that point", said Wasch. 
Similarly, David McClure of the
US Internet Industry Association (USIIA) 
said in a release that S 2084 "is a hoax". 
The USIIA release asserts that it "allows 
taxation of the connection between the ISP and the Network Access Point (NAP), 
taxation of the Internet backbone, taxation of Internet connections required 
for redundancy and quality-of-service agreements, and any other Internet 
connections or circuits. These taxes would be passed along to consumers, and 
would significantly increase the cost of both broadband and dial-up Internet 
services." 
BellSouth issued a
release which states that "Even opponents of Internet tax freedom now 
concede the importance of 
keeping the internet tax free from State and local taxation. The bill they 
introduced today falls far short of accomplishing that objective. Instead the 
``Alexander-Carper´´ legislation will leave millions of Americans vulnerable to 
increased costs every time they access the Internet. This will result in 
nothing more than a massive tax increase for millions of consumers." 
BellSouth adds that it support S 150. 
BellSouth further states that this quote is attributable to the "Consumer 
Internet Access Coalition", of which BellSouth is a member. (A Google search for this coalition 
only turns up references to this release.) 
BellSouth is an incumbent local exchange carrier (ILEC) that offers internet 
access services via DSL. 
                 |