Wednesday, October 17, 2007

Internet Tax Moratorium Passed By House

Yesterday the House passed H.R.3678 - Internet Tax Freedom Act Amendments Act of 2007 405 to 2. The bill, sponsored by Rep. John Conyers. Judiciary Committee chairman, extends the current moratorium on certain taxes relating to the Internet and to electronic commerce to November 1, 2007. The link will take you to Open Congress which provides summary of the bill and a link to the full text. The AP reports that the bill's progress "is uncertain in the Senate, where there is also considerable support for a permanent tax ban." The current moratorium expires November 1, 2007.

Chairman Conyers press release is reprinted on the flip.

For Immediate Release
October 16, 2007 Contact: Jonathan Godfrey
Melanie Roussell

(Washington, DC)- Today, the U.S. House of Representatives overwhelmingly passed the "Internet Tax Freedom Act (ITFA) Amendments Act of 2007," which was introduced by House Judiciary Committee Chairman John Conyers, Jr. (D-MI). The Act extends the moratorium on certain taxes relating to the Internet and to electronic commerce and addresses growing concerns as innovation occurs. The bill passed with a vote of 405-2. The Chairman issued the following statement in support of the bill:

H.R. 3678 is an excellent example of what can occur when we work together – on both sides of the aisle – to deal with highly complex issues. And I am evidently not alone in this observation.

This bipartisan legislation is supported by industry groups such as like the Don't Tax Our Web Coalition, as well as by various government organizations, such as the National Governors Association, the Federal Tax Administration, the National Conference of Mayors, and the National Conference of State Legislatures. It is also supported by a wide range of labor and union groups.

In sum, H.R. 3678 temporarily bans State and local taxes on Internet access, while minimizing the effect on state and local government ability to raise needed revenue and treat businesses fairly. This bill is pro-consumer, pro-innovation, and pro-technology. It amends the Internet Tax Freedom Act (ITFA) in four key respects.

First, it extends the moratorium on state and local taxes on Internet access for four years, until November 1, 2011. The four-year time-frame will allow Congress to make any adjustments to the moratorium if necessary in light of developments in the States or in technology – as Congress has done each time it has extended the original moratorium – in 2001, in 2004, and in this bill. It will also allow sufficient time for business planning, while ensuring that consumers continue to have the benefit of tax-free access to the Internet.

Second, the bill extends for four years the “grandfather” provisions to preserve the legality of taxes imposed prior to the 1998 Act, consistent with past extensions. The bill also phases out new grandfathers that some states claim were created in the 2004 extension, while allowing states that issued public rulings before July 1, 2007 that are inconsistent with the foregoing rules to be held harmless until November 1, 2007.

Third, the bill clarifies the treatment of gross receipts taxes, which certain states have enacted in recent years in lieu of, or as a supplement to, general corporate income taxes. Like the general corporate income tax, these gross receipts taxes apply to nearly all large businesses, not just to Internet access providers.

The bill clarifies that this form of general business tax is treated in the same fashion as a corporate income tax, and is not covered by the moratorium as long as it is broadly imposed on businesses and is not discriminatory in its application to providers of communication services, Internet access, or telecommunications.

Finally, in response to a number of concerns regarding the definition of “Internet access” in the current law, the bill clarifies the term to mean a service that enables a user to connect to the Internet. This new definition will not only prevent all tax-exempt content bundling, but will also include closely-related Internet communications services such as e-mail and instant messaging.

In addition, the bill amends the definition of "telecommunications" to include unregulated, non-utility telecommunications, such as cable service.

I want to particularly thank Ranking Member Smith, as well as Subcommittee Chairwoman Sánchez and Ranking Member Cannon, for their cooperative efforts in helping us get to this point.

H.R. 3678 is a good, strong bill that provides much needed clarity to the communications and Internet industries, and strikes the right balance in addressing the needs of state and local governments while helping keep Internet access affordable.