The National Governors Association (NGA) yesterday called on Congress to extend the existing moratorium on Internet access taxes but cautioned lawmakers from broadening the ban to include telecommunications.
Legislation to expand the definition of Internet access and make the moratorium permanent was passed by the House in September and has been approved by the Senate Finance Committee. The full Senate is expected to vote on the legislation before their anticipated adjournment in mid-November. The moratorium expires Nov. 1.
Governors support extending the existing moratorium on access taxes, which are applied to the fees consumers pay for connecting to the Internet. NGA's concerns are over language in the legislation (S.150) that would expand the definition of Internet access and exempt a variety of telecommunications services that are currently taxed. Not only would the new language exempt certain telecommunications services, but it also would expand the preemption beyond sales taxes to include some income, property and other business taxes on this industry.
As a result, states could lose between $4 billion and $9 billion in revenue by 2006, according to a study released last month by the Multistate Tax Commission.
Yesterday, Sens. Charles Grassley (R-IA), John Ensign (R-NV), John Sununu (R-NH), Gordon Smith (R-OR) and George Allen (R-VA) offered what they called a compromise to fix those concerns.
Unfortunately, the language to fix the definition of Internet access is nothing more than a slightly different way of stating what is already in S. 150, and therefore must be rejected, NGA said.
In an Oct. 22 NGA letter to Senate leadership, Oklahoma Gov. Brad Henry and South Dakota Gov. Mike Rounds, chair and vice chair (respectively) of NGA's economic development and commerce committee, said, "With little time to negotiate an appropriate definition of Internet access, we encourage you to support a simple, temporary extension of current law to allow Congress, industry, and governments time to fashion a permanent moratorium that is thoughtful and fair."
In addition to NGA's letter, individual governors have been writing to senators urging them to fix the legislation by clarifying that the moratorium applies only to access.
In a letter to Sen. Charles Grassley (R-IA), chairman of the Senate Finance Committee, Ohio Gov. Bob Taft wrote, "I urge you to continue working with your Senate colleagues to narrow the preemption language to its original intent so as to affect Internet access only."
In writing to Sen. Max Baucus (D-MT), ranking member of the Senate Finance Committee, Delaware Gov. Ruth Ann Minner said, "State and local governments have been working for several months with the Senate Commerce Committee and the Senate Finance Committee to craft a moratorium that is technology neutral without unduly burdening state and local governments by eroding their existing tax base. This is the optimum outcome."
Arkansas Gov. Mike Huckabee, Illinois Gov. Rod Blagojevich, Indiana Gov. Joseph Kernan, Iowa Gov. Thomas Vilsack, Michigan Gov. Jennifer Granholm, Missouri Gov. Bob Holden, North Carolina Gov. Michael Easley, Washington Gov. Gary Locke, West Virginia Gov. Bob Wise, and Wisconsin Gov. Jim Doyle also have written letters to Senators.
State and local government groups including NGA wrote to House and Senate leaders Sept. 17 to voice their concerns with the legislation.
"Unfortunately, the new language is overly broad and may be interpreted to include traditionally taxable telecommunications. This ambiguity will only add to uncertainty for industry and consumers, encourage litigation and unnecessarily expose state and local governments to unanticipated revenue losses they cannot afford."
