Senators introduce 'Net tax ban

Three U.S. senators have introduced a bill to permanently extend a ban on taxes unique to the Internet, such as access taxes.

Democrat Ron Wyden of Oregon, Republican John McCain of Arizona and Republican John Sununu of New Hampshire introduced the Permanent Internet Tax Freedom Act Thursday, the first day of business for the new U.S. Congress. The bill, in addition to permanently banning taxes on Internet access, would prohibit states from taxing online purchases if they don't also tax catalog or phone-based sales.

If Congress does not extend the ban, consumers could face significant increases in the cost of Internet service, Wyden said in a statement. "Why should a product that's not taxed on the street or taxed in a store be taxed on the Internet?" Wyden said. "It's unfair, anticompetitive and would greatly harm one of the booming sectors of our economy."

Congress first passed a temporary ban on taxes that target the Internet in 1998, and has extended the ban twice. The current moratorium expires in November.

But a group of senators objected to a permanent ban on Internet-only taxes after the House of Representatives approved one in late 2003. The senators, a group of former state governors, said the House version banned taxes on voice communications and would hurt state budgets. The Senate, in late 2004, passed a temporary moratorium that allowed states to collect traditional telephone taxes on newer VOIP (voice over Internet Protocol) service.

McCain and Sununu also cosponsored a bill, along with two other Republican senators, that would place a three-year moratorium on new and "discriminatory" taxes on mobile phone services. Many municipalities tax mobile services at rates two to three times higher than sales taxes, according to McCain's office. McCain tried to add a similar amendment to a broadband bill that failed to pass last year.

The Internet tax band would "ensure that consumers never have to pay a toll when they access the information highway," McCain said in a statement. "Keeping Internet access affordable to all Americans is a worthy policy goal."

The Information Technology Association of America (ITAA) and the United States Telecom Association, both trade groups, praised the bill to permanently ban Internet-only taxes. "Stacking the deck against e-commerce is stacking the deck against growth and prosperity," Phil Bond, ITAA's president and chief executive, said in a statement.