Talking Points on HR 49/ S 150
"Internet Tax Non-Discrimination Act"
A Threat to Local Governments' Fiscal Health and
Right-of-Way Management Authority
November 12, 2003
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INTERNET TAX ISSUE: The Internet Tax Freedom
Act created a temporary moratorium on taxation of Internet Access.
(Note – this is not the Internet sales tax issue. ITFA would
prohibit state and local taxation of Internet service providers
such as AOL.) This moratorium expired November 1, 2003.
S. 150 and H.R. 49, the Internet Non-Discrimination Act, was originally
designed to extend the moratorium. However, in the House and Senate
Commerce Committee, the bills were amended to (1) delete the expiration
date, making the moratorium permanent; and (2) to expand the definition
of “Internet Access” to include “telecommunications
services used to provide Internet access.” The drafters were
trying to exempt DSL and cable modem service from taxation. (3)
The original ITFA grandfathered nine or so state that had been taxing
the Internet before October 1, 1998. S. 150 / H/R/ 49 would have
removed that grandfather clause.
PROBLEM WITH S. 150: Local and state governments were deeply
concerned about the definition change because a regular telephone
could be used to provide dial-up Internet access. Thus, telecommunications
providers might try to evade all state and local telecommunications
taxes, franchise fees, universal fund fees, E-911, state income
taxes, local gross receipts taxes, right-of-way access line charges,
etc. In addition, the bill created a giant tax incentive to migrate
service to the Internet (such as telephone calls being delivered
as Voice-Over-Internet-Protocol).
OPPONENTS OF S. 150: The National Governors Association,
National League of Cities, United States Conference of Mayors, National
Association of Counties, International County and City Managers
Association, National Association of Telecommunications Officers
and Advisors, and TeleCommUnity all oppose s.150.
MANAGER’S AMENDMENT TO S. 150: In response to state
and local governments, various proponents have amended S. 150. The
Manager’s Amendment, introduced late in the evening on Nov.
6: (1) narrowed the Internet access definition – DSL and cable
modem could not be tax, but service would have to sold as Internet
access, so ostensibly, it would be harder for telecommunications
providers to argue that regular telephone service fits the definition;
(2) preserves taxes on new income (typically state income taxes)
but not sales taxes or taxes based on gross receipts (typically
local); (3) states that the bill does not affect franchise, Universal
Service, and E-911 fees; and (4) the moratorium is still permanent
and the grandfathering expires.
ALEXANDER-CARPER AMENDMENT: This amendment amends the Manager’s
Amendment, was introduced by Senator Alexander, and is sponsored
by Senators Carper (D-DE), Hollings (D-SC), Stevens (R-AK), Voinovich
(R-OH), Graham (D-FL), Dorgan (D-ND), Feinstein (D-CA), Lutenberg
(D-NJ), and Conrad (D-ND). Under the Alexander-Carper Amendment:
(1) the moratorium expires in 2-years, forcing Congress to address
the issue again; (2) the grandfathering does not expire for two
years; (3) the definition of Internet access is amended as noted
under Manager’s Amendment.
This is best compromise state and local governments have been able
to work out. Senator Allen is still holding out for the Manager’s
Amendment (Sens. Allen (R-VA) and Wyden (D-OR) were the original
co-sponsors of the amended S. 150.)
For More Information: http://www.telecommunityalliance.org/issues/internettaxation.html
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