Senate Vote on Net Taxes Looms

Senators may vote Thursday on whether and for how long to extend a ban on taxing various ways consumers connect to the World Wide Web (search).

Lawmakers failed to reach a compromise Tuesday on renewing the Internet access tax moratorium (search), which was first enacted in 1998 during the age of dial-up, renewed in 2001 and expired in November.

At issue this week is a bill sponsored by Sens. George Allen (search), R-Va., and Ron Wyden (search), D-Ore., which would permanently extend the expired moratorium and prohibit taxes on all types of high-speed Internet services, including digital-subscriber line (search) service, cable modems, satellite and other future telecommunications services. It would also prohibit taxes that treat online and offline businesses differently.

Some say the rewrite goes too far, opening a loophole that would allow telecommunication companies to evade taxes. Others say the ban simply levels the playing field for all technologies.

An alternative proposal recently offered by Sen. John McCain (search), R-Ariz., would impose the tax ban for four years, exclude Internet-based telephone services from the ban and temporarily allow some states to continue taxing Internet access if they already do.

Allen is now throwing his support behind McCain's bill and is urging his colleagues to follow suit. Many groups that supported Allen's bill, such as the Consumer Internet Access Coalition (search), are also now supporting McCain's measure.

"While Senator McCain's amendment ... is not ideal, it's not what Senator Allen initially wanted, it is certainly better than the other alternatives are out there," Allen spokesman John Reid told

The four-year extension of the current moratorium "is a significant amount of time for small businesses and consumers to plan and know that they're not going to be taxed and it also weans state governments and local governments off of their current taxation of the Internet," Reid continued.

An opposing measure sponsored by Sens. Lamar Alexander (search), R-Tenn., and Tom Carper (search), D-Del., extends the same moratorium for two years and bans states from taxing individual users of DSL but allows some business taxes on Internet service. States that were already collecting access taxes could continue to do so.

Critics of the McCain bill, including groups like the National League of Cities (searchand the National Governors Association, say telecommunications companies would receive a huge windfall of cash under the bill and would harm states.

A group of Republican and Democratic senators faulted fundamental parts of the McCain proposal, such as the definition of "Internet access." The senators worry that too broad a ban could drain tax dollars from state and local governments.

"To me, this is a gigantic take from the states," said Sen. George Voinovich (search), R-Ohio.

"The McCain proposal continued to extend the Internet tax moratorium by attaching it to billions of dollars in new subsidies for the telecommunications industry at the expense of state and local governments," Carper said in a statement Tuesday.

Still, the McCain bill seems to be gaining momentum.

"While the Internet doctor would have prescribed a permanent ban, we feel the four-year moratorium does enough to quell the pain. The four-year moratorium ensures the continued expansion and deployment of broadband technology," said Tim Hugo, president of CapNet, a national technology association representing more than 40 software, telecom and Internet companies.

"Taxing this influential medium restrains Americans who desire to use the Internet at affordable prices."

The U.S. Chamber of Commerce wrote to senators also urging support for McCain's bill and "to oppose any delaying tactics or amendments that would weaken the length and breadth of the moratorium."

Tuesday's debate took an abrupt turn away from Internet taxation into energy policy when Senate Democratic leader Tom Daschle of South Dakota moved to attach renewable fuel and ethanol (search) production incentives to the tax bill.

Senate Energy Committee Chairman Pete Domenici of New Mexico, a Republican, took advantage of the opportunity to revive the rest of a stalled energy bill.

"A totally, completely, absolutely, totally extraneous amendment, an entire piece of legislation," McCain said. "What am I supposed to tell my taxpayers, my citizens, my voters that we're doing here in Washington?"

A series of votes Thursday could decide whether the Internet tax bill absorbs the energy bill.

"Our expectation is that they all will fail," a congressional aide said about the amendments, including McCain's.

Alexander and Carper have some amendments regarding broadband service and other issues that they'd like to tack on the McCain measure, but depending on how the Senate votes Thursday, those amendments may not be allowed.

"I think there's still some hope for some compromise here but it'll just have to play itself out," said a Carper aid, who added that the issue may or not be completely resolved this week.

"There is no consensus," said Daschle. "This is as hotly debated, probably not as well understood a piece of legislation as it needs to be. It will be some time before we reach a consensus, unfortunately."

About 10 states and several local jurisdictions are currently collecting access taxes that total between $80 million and $120 million a year. They were taxing those services before the original ban was enacted.

The Associated Press contributed to this report.