Carper-Alexander bill bans taxes on Internet access

To protect consumers, promote Internet usage and safeguard essential state and local services, Sens. Tom Carper, D-DE, and Lamar Alexander, R-TN, introduced legislation on May 23 that would extend the current ban on Internet access taxes for another four years.

The Internet Tax Freedom Extension Act of 2007 represents a reasonable, four-year extension of Internet tax moratorium legislation that has been in place since 1998. The Carper-Alexander legislation essentially improves the existing moratorium by closing tax loopholes and clarifying the definition of “Internet access” to better protect essential goods and services provided by state and local governments.

“Our bill would ensure that consumers continue to enjoy tax-free access to the Internet, including e-mail and instant messaging,” Sen. Carper said in a statement. “In the meantime, we fix many problems with the current law so that as future services, such as cable television, migrate to the Internet, we don’t completely erode the tax base of state and local governments.”

The Carper-Alexander bill alters the definition of tax-free, Internet access to ensure that a consumer’s connection to the Internet, including e-mail and instant messaging, remains tax-free. At the same time, the bill closes a loophole in the original 1998 moratorium that could allow an Internet Service Provider to bundle Internet access with other services and make them all tax-free.

This loophole is important because it could harm the traditional tax base of state and local governments. In 2004, the last time the ban was extended, Congress exempted voice-over-Internet-protocol services from the moratorium because of fears that states and localities could lose billions of dollars in revenue as telephone services migrated to the Internet.

As the Internet continues to grow and more services migrate to the Internet, Sens. Carper and Alexander said it makes sense to close that loophole and define Internet access exclusively as the connection between a consumer and the Internet service provider.

Such clarity will continue to ensure that Internet access is tax-free, while also ensuring state and local governments do not have to come up with new – and potentially more burdensome – sources of revenue to pay for teachers, firefighters and healthcare services.

In addition, the legislation extends the original “grandfather” clause, thereby allowing the nine states that collected revenues from Internet access before the 1998 tax moratorium to continue to collect those taxes.

The other bill co-sponsors are Sens. Michael Enzi, R-WY, Dianne Feinstein, D-CA, and George Voinovich, R-OH.

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