STATE TELECOM ASSOCIATIONS WORRY ABOUT INTERNET TAX MORATORIUM
States and municipalities are expressing concern that legislation designed to prevent taxes on access to Internet service eventually could restrict local govt. regulation of telephony and cable service. NARUC, the National Governors Assn. (NGA), National Assn. of Telecom Officers & Advisors (NATOA) and the TeleCommUninty Alliance (TCUA) are among the local interests expressing concern about S-150, the proposed Internet Tax Non-Discrimination Act.
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While most state groups support an extension of the status quo -- the current temporary moratorium that now prevents states from taxing direct access to the Internet -- there’s concern that S-150 and a similar measure already passed by the House would change the definition of Internet access in a manner that would threaten the regulatory regime governing communications services. There currently are several holds on S-150, which is sponsored by Sen. Allen (R- Va.) and Wyden (D-Ore.).
NARUC said Fri. that some of its concerns were likely to be addressed in a manager’s amendment. NARUC said it’s primary concerns were: (1) Possible impact on the FCC’s wireline DSL and cable modem proceedings. NARUC said if S- 150 became law, it would add momentum to the FCC’s continuing efforts to stretch the definitions in the Telecom Act in a way that would remove all broadband providers from common carrier regulations, even on voice service that competed directly with existing legacy voice services. (2) Possible impact on the collection of universal service funds (USF), particularly by voice-over-IP telephone services. (3) Possible impact on general assessments used to fund state commissions and specific USF funds. But NARUC said a revised manager’s amendment included language that said the legislation wouldn’t affect any proceeding at the FCC or other federal or state agency.
NATOA Exec. Dir. Libby Beaty said the manager’s amendment didn’t address her concerns. “They don’t understand the ramifications of what they are about to do,” she said. Beaty said the changes in the definition of Internet access could jeopardize states’ ability to regulate telecom services. She said she supported temporary extension of the current moratorium while “we assess this problem.”
The NGA said it, too, would oppose the legislation because of the expanded definition of Internet access. “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,” NGA said. The TCUA said it also would remain opposed to the bill: “We are concerned that S- 150 threatens local governments’ existing rights to collect fair rent for the use of the public’s rights-of-way and to use broad based and nondiscriminatory taxes to support local governments’ first responders, make local infrastructure investments and operate our schools.”
Senators currently blocking consideration of a bill to make permanent the moratorium on discriminatory Internet taxes are trying to “kill and unravel this legislation,” Wyden said Thurs. Wyden, Allen and House Select Homeland Security Subcommittee Chmn. Cox (R-Cal.) told reporters Wed. that they would work hard to get S-150 considered on the Senate floor before the current moratorium expires Nov. 1.
Allen has been working with recalcitrant senators on a manager’s amendment. He told NARUC he was including language to clarify that the wording on Internet access applied only to broadband services bundled with telecom and in no way restricted taxes on telecom services. Such language would help guide any court in determining congressional intent. He said Thurs. that he had been working for months with senators concerned with the bill’s language but “in the event [the objections] are insincere; obviously we're not agreeing with them. We're going to fight as hard as we can against these delaying tactics.” Using a football analogy (his father once coached the Washington Redskins), Allen said that in the Senate it was as if people got points for delays of game.
Senate Majority Leader Frist (R-Tenn.) has been lobbied heavily to move S-150 before the moratorium expires. Commerce Secy. Donald Evans and Treasury Secy. John Snow wrote Frist and Minority Leader Daschle (D-S.D.) Wed. urging rapid passage: “We support expediting passage of this important legislation to enable President Bush to sign it before the moratorium expires.” Cox said he met recently with Bush and Vice President Cheney, and both said they wanted the bill passed before Nov. 1. The Progress & Freedom Foundation (PFF) sent to all senators a letter from 32 national and state policy experts making the same point. Frist said Wed. the Internet tax moratorium was a priority bill for him to move soon, and said it was “being worked on.” Majority leaders can lift holds -- they are a courtesy, not a formal Senate procedure -- but such actions are rare, particularly in the middle of a Congress.
Sen. Alexander (R-Tenn.) lit into the moratorium bill on the Senate floor Wed., differing with his Tenn. colleague. In the middle of the debate on spam legislation (see separate story, this issue), Alexander said the bill would send “up in smoke” the 10th Amendment, which reserves most powers to states. Tenn. relies heavily on sales taxes as it has no income tax, and Alexander said “if Tennessee’s ability to have a broad-based sales tax is limited, then the chances that Tennessee will have an income tax are higher.” While the moratorium bill is separate from an effort to permit states to tax remote sellers, Alexander linked the 2, as many other senators have in the past. He said he supported the moratorium “so the Internet could get up and get going, but now it is up and going,” calling the moratorium “the worst kind of unfunded mandate.” He asked: “Is access to the Internet more important than food? If not, then why not limit the state sales tax on food, medicine, electricity, natural gas, water, corporations generally, car tags, telephones, cable TV?” He entered in the Congressional Record the much-cited Congressional Budget Office report predicting losses for the grandfathered states.
“Essentially, the arguments being made today” by Alexander “are identical to the ones that were made 5 years ago,” Wyden said. Five years ago, Wyden said, “we were pretty much told Western civilization was going to end… we have not seen that to be the case.” Suggesting the debate should be over, Wyden said S-150 had “passed the Commerce Committee unanimously. It is the first time since we have been at this that it has been passed unanimously.”
Wyden was even tougher in discussing Alexander with reporters Thurs. He called Alexander’s speech “a final assault” on the legislation, giving him credit for being honest about his motives. Several opponents couch their opposition on issues such as the ban on DSL access taxes, he said, but in reality “they want to gut this law.”
When the House Judiciary Administrative and Commercial Law Subcommittee approved the telecom language in HR-49, some expressed concern that it would provide a precedent for defining voice-over-IP as an information, not telecom, service. That would have significant repercussions with state regulators, but Wyden, Cox and Allen all insisted Thurs. their bill applied only to access taxes, not regulation, and in fact merely clarified a ban that had existed since the original 1998 moratorium.
“Voice-over-IP, that is something for the FCC,” Allen said, noting they were having a hearing on the subject later this year to “try to resolve the whole issue.” S-150, he said, “does not adjudicate or dispose of this matter.” Those raising that prospect, he said, are “coming up with a bunch of excuses and ruses” to block the bill.
Several state groups have urged that instead of making the moratorium permanent, it could be extended for a matter of months or years to give more time for discussion. That happened in 1998 and 2001, but Wyden said “we're not going to settle for a temporary moratorium this time.” In 2001 the Senate didn’t renew the moratorium until a few weeks after it expired, and no states took the initiative in that window to approve new Internet taxes. Wyden gave the states credit for that, but Allen said that with the Senate running out of time for other legislation, the bill could get bumped until Jan. or later, giving states and municipalities time to impose taxes and boosting legal cases in Ky. and Ala., which are trying to tax Internet transport.