Last-Ditch Senate Battle Underway Over Broadband Taxes

The issue of whether to tax Internet service providers is threatening to tie up the U. S. Senate for the rest of the week, as pro-tax Senators led by Lamar Alexander (R-Tenn.) make a last-ditch effort to pass legislation that will enable states and local governments to levy such taxes.

Because the House has already approved a bill banning Web taxes, and President Bush Monday called for tax-free broadband service, the Senate faces an uphill fight in what has turned out to be a surprisingly spirited debate. Compromise legislation by Senator John McCain (R-Ariz.) gained some traction Monday and is scheduled to be discussed by the Senate later this week.

McCain, who is chairman of the Senate Commerce Committee, wants to ban Internet taxes for four years. His proposal would not include VoIP telephone services. The entire issue of taxing Web telephoning is in a sort of legislative and legalistic limbo, as different states and different legal jurisdictions have different opinions on the issue. Much of the litigation is expected to end up at the Supreme Court for final disposition. In addition, Senator McCain this week is beginning hearings on the 1996 Telecommunications Act with an eye to revising the Act.

Alexander made an impassioned speech in favor of taxing the Web in the Senate chambers Monday, stressing that states will suffer hardships without the tax dollars broadband will bring. Alexander and Senator George Voinovich (R-Ohio) are former governors of their respective states and say they want to give states and municipalities power to tax broadband. The National League of Cities, an organization representing municipalities, says local governments would lose as much as $9 billion if the ban becomes permanent.

The question of what to do about VoIP complicates the issue, because VoIP calls generally travel over broadband, and there is a furious debate underway whether Web phone calls should be taxed as a telephone service or not taxed because they are sent over the Internet as data transmissions.Proponents of the tax ban in the Senate are resolute, too. Senator George Allen (R-Va.) and Senator Ron Wyden (D-Ore.) have led the tax-ban campaign. President Bush, who urged that broadband remain tax-free, supported their stand indirectly, this week. "We must not tax broadband access," he said.

Broadband suppliers have chimed in, of course, on the side of banning taxes. Broadband service providers--both telephone companies and cable companies--favor a continuation of the tax ban, although representatives from both industries have said they can live with Senator McCain's proposed legislation, too

Ten states have been taxing broadband right along because they did so before the initial ban went into effect in 1998.