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.
|