Senate Bans Most Web Taxes; Seeks House Compromise

In voting to ban Internet taxes for four more years by 93-3, the U. S. Senate reached a gentlemanly agreement that saw both sides of the spirited debate claim success. Now comes the hard part--hammering out a compromise with the House, which last fall voted to permanently ban Internet taxes.

However, there are many holes and exceptions in the Senate legislation. Much debate centered on broadband taxes--broadband cable generally isn't taxed, but DSL broadband often is, and some Senators said that that situation was unfair. Some states began taxing DSL before the original tax ban went into effect in 1998, while others started taxing after the ban began. Senator John McCain (R-Ariz.) said 17 states have found "a way to cleverly get around" the earlier legislation enabling them to tax DSL.

In the end, it was McCain's compromise bill that led to the final agreement. The vote was seen as a victory, too, for President Bush, who earlier in the week had urged that the Internet remain tax-free. In a statement, the President called the Senate vote "an important step toward permanently banning access taxes on broadband that will help make high-speed Internet services more affordable, increase the number of broadband users, and enhance our nation's economic competitiveness."

One proponent of banning Web taxes, Senator George Allen (R-Va.) noted that many states and municipalities have found ways "to wiggle around" the tax ban; he said that in his state's capital city, Richmond, telecommunications taxes, including Web levies, come to 27 percent. Another senator noted that some of today's telephone taxes were levied during the Spanish-American War in 1898, and there's been no way "to get rid of it."

The issue caused senators to cross party lines. Opponents of the tax ban had generally served previously as governors in their respective states, and they said state and local governments would suffer great hardships if they aren't allowed to tax the Internet. Indeed, various state and local governmental associations have estimated that their constituents would lose billions of dollars if taxes on the Internet were dropped. "States are in the worst fiscal straits they've been in since the second war," said Senator George Voinovich (R-Ohio), a former governor.He and Senator Lamar Alexander (R-Tenn.)--also a former governor--led the fight to lift the tax ban. Alexander said: "It will be difficult to get anything different than this past the Senate."

The most passionate defender of the tax ban has been Senator Ron Wyden (D-Ore.), a liberal who embodied the age-old adage that politics makes strange bedfellows, for Senator Wyden found himself allied with President Bush. Wyden said: "We have held steadfast to the proposition that the Internet, this extraordinary and global treasure, shouldn't be subject to multiple and discriminatory taxes."

The Senate deliberately decided to avoid including Internet telephoning in the bill. VoIP is a separate can of taxation worms that is already a contentious subject in the courts and in state and federal regulatory agencies.