House Approves Extension to 'Net Tax Ban

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The U.S. House of Representatives has voted to extend an Internet tax moratorium for just four years, despite calls from the tech industry to permanently bar state and local governments from taxing Internet access.

By a vote of 405-2, the House on Tuesday voted to pass the Internet Tax Freedom Act Amendments Act, which would extend the moratorium on Internet access taxes and other taxes unique to the Internet until November 2011. The current ban, extended twice since first Congress first enacted it in 1998, is set to expire Nov. 1.

One of the lawmakers voting against the temporary extension was Representative Anna Eshoo, a Democrat who represents part of Silicon Valley in California. Eshoo had pushed for a permanent ban.

"The moratorium has served us well and the Internet is now an integral part of everyday life," Eshoo said earlier this year. "It's more critical now than at any time since the moratorium was established to protect the Internet from new taxes and fees. The country that invented the Internet no longer leads the world in Internet access and use."

Similar legislation has stalled in the U.S. Senate. The Senate would have to pass a similar bill, and U.S. President George Bush would have to sign it, before the moratorium is extended.

The House bill also narrows the definition of Internet access, allowing state and local governments to tax Internet-related services such as VOIP (voice over Internet Protocol). Opponents of a permanent extension, including some lawmakers, have expressed concerns that the original tax moratorium could be interpreted to ban taxes on services such as VOIP.

State and local government groups are worried that a ban on VOIP would hurt their revenue.

The House bill also allows nine states that began taxing Internet access before 1998 to continue their taxes.

The United States Telecom Association, a trade group representing voice and broadband providers, praised the House for extending the tax moratorium.

"Every day, broadband technology is changing the way Americans live, from how they do business to how they learn and communicate to how they access medical treatment," Walter McCormick Jr., president and CEO of the group, said in a statement. "An Internet access tax penalizes that way of life. In essence, we're talking about a tax on economic opportunity, on knowledge, and on finding one's voice in the democratic process."

It is "imperative" that Congress doesn't allow the moratorium to expire, McCormick added.

But critics have said the deadline isn't as urgent as some tax moratorium supporters say it is. Before Congress last extended the moratorium in 2004, it had lapsed for about a year without new states taxing access.

The Washington Post, in an editorial Tuesday, said a four-year extension is adequate for an industry asking for "special treatment" compared to other taxed goods.

"The Internet is not in danger of being stifled by a few extra dollars tacked on to subscribers' monthly bills," the Post editorial said. "The rates of broadband availability and household subscription to Internet services are no lower in the nine states that have Internet taxes than in those that don't."

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