[color=purple]Proving the theory that most democrats never met a tax they didn't like![/color]
WASHINGTON — Concerned that state and local governments could miss out on billions of dollars in taxes from some Internet transactions, senators halted a bill Friday that would permanently ban taxes on Web access.
But lawmakers who support the permanent ban on Internet access taxes say such fears are unfounded.
"All the bill says is you cannot discriminate against electronic commerce, and not one state has come forward and given an example of how they have been hurt by their inability to discriminate against electronic commerce," said Sen. Ron Wyden, D-Ore.
The temporary ban expired last week. Senators are aiming to complete a bill next week that would extend the ban for another five years.
[b]Opponents of the ban, like Sen. [SIZE=3]Dianne Feinstein, D-Calif[/SIZE]., say they fear cities that rely on taxes collected from telecommunications will suffer because more and more people are using more sophisticated methods to get onto the Internet and then are using the Internet to make phone calls and conduct other types of business.
San Francisco could lose $30 million in existing taxes annually, Feinstein claimed.
"That translates into 300 police and firefighters," she said. [/b]
Nationally, state and local governments collect more than $20 billion every year on telecommunications. The Congressional Budget Office , the investigative arm of Congress, said the losses would come from several directions.
About 10 states that imposed a tax on Internet access charges before the original ban and were grandfathered from the moratorium, would lose $80 million to $120 million each year.
States that currently tax high-speed DSL services would be prohibited by the bill permitting a permanent ban. That would cost states up to $40 million each year.
Lastly, the CBO predicts "substantial revenue losses" that might result from state and local governments' inability to collect taxes on certain types of telecommunication services that are provided over the Internet, and free content like music and movies sold along with Internet access.
"CBO does not have sufficient information to estimate these revenue losses, but we believe they could grow to be large," the report said. "The issue might ultimately have to be resolved in the courts."
The Multistate Tax Commission estimates changes to the current tax collection avenues will cost governments at least $4 billion a year, but some say that projection is ridiculous.
"Those numbers are not very believable," said Scott Mackey, a former chief economist for the National Conference of State Legislatures and now a consultant on state and local tax issues for major wireless corporations.
Some lawmakers say taxes on DSL services violate the spirit of the original Internet access tax moratorium and have refused to alter the definition of "Internet access," originally written in such a way to ensure that new types of access, like old dial-up connections, also are not taxed.
Supporters of the permanent ban say discussion of anything less is already a "painful concession."
[b]"The biggest problem with what they're advocating has to do with the definition of what is Internet access. What they want to do — and we're hoping to work it out, everyone's working in good faith — is to [u]make sure they're not taxing the Internet backbone[/u]," said [SIZE=3]Sen. George Allen, R-Va[/SIZE]. [/b]
But proponents of tightening the definition of Internet access to include only the initial connection of a consumer to the World Wide Web say that would still allow for a ban, but not cut off the critical telecommunications tax base that state and local governments desire.
[b]"The question is, where do we prohibit the imposition of the tax?" asked [SIZE=3]Sen. Tom Carper, D[/SIZE]-Del. "Our colleagues have a much broader vision of where the Internet access comes from. By their expanded definition[u], they expand the prohibition dramatically on what state and local governments can tax[/u]." [/b]
Observers say the debate reflects the inability of state and local governments to update their tax laws to innovation.
"They were designed when you had storefronts and we didn't have anything like e-commerce," said David Cowling, an expert in electronic commerce and partner at Jones Day law firm. "It's a little overstatement to say they were designed to tax buggy-whips, but that is the concept."
Cowling said that communications technology is changing too rapidly for the federal government to write legislation that says any rule is "permanent."