August 28, 2003

Members of the Senate Committee on
Commerce, Science and Transportation
Washington, DC 20510-6125

Dear Chairman McCain, Senator Hollings, and Members of the Committee:

On behalf of our colleagues in local government, we write to express our concerns with S. 150, the "Internet Tax Non-Discrimination Act." While we understand, and can support, many of the goals of the amendment’s authors, we fear that the language of S. 150 will promote litigation and confusion. For, despite statements to the contrary, some in the industry will seek to use the language of S. 150 to avoid traditional telecommunications sales taxes, and/or franchise or right-of-way fees paid as rent to use the public rights-of-way for infrastructure deployment.

The Supreme Court has sustained the right of state and local governments to require sales taxes on intra- and interstate telecommunications services provided within our states and communities. See Goldberg v. Sweet, 488 US 252, 109 S.Ct. 582 (1989). Such telecommunications sales taxes are comparable to other general excise taxes paid by non-telecommunications businesses for the privilege of doing business within our communities.

Separately, since 1893, the Supreme Court has held that right-of-way fees are not taxes but payments in the form of rent. See City of St. Louis v. Western Union Tel. Co., 148 US 92, 99, 13 S.Ct. 485, 488 (1893). More recently, the 5th Circuit in City of Dallas v. FCC, 165 F.3d 341 (5th Cir. 1999) reiterated the holding of St. Louis when it found that a franchise fee is not a tax, but an expense of doing business that is essentially a form of rent.

We would like to work with you to clarify that in adopting S. 150 and its House counterpart (H.R. 49), the Congress does not intend to impair the collection of traditional telecommunications sales taxes, nor rights-of-way fees, nor gross percentage fees collected in lieu of right-of-way fees. Congress should also clarify that it does not intend to adversely impact the collection of excise taxes of general applicability on services that just happen to employ telecommunications, cellular or cable television facilities that also offer access to the Internet. We offer the following suggested language to accomplish these goals:

SEC. 5 No Impact on Rights of Way Fees or Franchise Fees
Nothing in the Internet Tax Freedom Act shall prevent the imposition or collection of any fees or charges for use of a state or local government’s right-of-way, taxes in lieu of right-of-way fees, or sales and use taxes on telecommunications services. Nothing shall affect or void the terms of any existing franchise as authorized by Sections 253, 621 or 622 of the Communications Act of 1934, as amended.

Sincerely,


Hon. Marilyn J. Praisner
Chair
TeleCommUnity