Net Access Tax Could Be Banned Forever

WASHINGTON, D.C. -- The existing ban on Internet access taxes could become permanent under bipartisan legislation introduced by two Virginia Congressional representatives.

A moratorium on those access and so-called discriminatory taxes is set to expire in October. The new legislation extends this moratorium and targets taxes on Internet access and charges levied by state governments, which are similar to telecommunications taxes. The bill was introduced by representatives Bob Goodlatte, a republican, and Rick Boucher, a democrat.

The bill does not address the widely debated issue of Internet sales tax, Goodlatte says, but it does clarify when and how a state can collect business activity taxes, including franchise and corporate income taxes.

Now, state governments can collect taxes from businesses that do not have a physical presence, or "nexus," in the state. The bill proposes that states could collect taxes under specific circumstances only.

For example, currently if a company leases property in another state for less than 30 days, it would not be subject to a state tax. However, if it sends an employee to work out of state for more than 30 days, the second state could levy an income tax. Some businesses are avoiding expansion into other states to escape this taxation, which hinders economic growth, Goodlatte says. The Coalition for Rational and Fair Taxation, which represents the interests of corporations such as American Express and Viacom, seems to agree.

"[The bill] would ensure fairness, minimize litigation, and create the kind of legally certain and stable business climate that encourages businesses to make investments, expand interstate commerce, grow the economy and create new jobs," the group says in an endorsement letter to Goodlatte and Boucher.

Virtual Businesses

The continued growth of e-commerce, in which state boundaries are often blurred, will only intensify confusion over tax procedures, says a spokesperson for Goodlatte.

However, critics of the bill say it would hurt states that already are expecting revenue generated from business activity taxes.

"This bill would change existing revenues incorporated into current state budgets," says Frank Shafroth, director of state federal relations for the National Governors Association.

He also questions the permanent ban on Internet access and discriminatory taxes, saying the ban was implemented three years ago to create competition among companies such as America Online and Microsoft.

"Though some people obviously still think they need subsidies to compete, we don't," Shafroth says.

But supporters of the provision insist it is fair, and necessary to keep e-commerce healthy.

"We believe that the states where we have employees and property should be the states who receive our tax dollars," says Richard Bates, a spokesperson for Walt Disney.