By passing a bill that would extend the moratorium on Internet access taxes for another seven years, the U.S. Senate last week gave proponents of the legislation hope that the extension can be signed into law before the moratorium lapses this Thursday (Nov. 1).

The Senate bill is essentially an amended version of a House of Representatives bill – called the Internet Tax Freedom Act Amendments Act – that was passed earlier this month and which extends the Internet-tax moratorium for four years. The two congressional chambers must now craft a compromise bill from the two conflicting pieces of legislation, before sending the reconciliation bill to the White House for U.S. President George Bush to sign into law.

Congressional aides are hoping that a compromise bill said they were hopeful the whole process would conclude before current law’s Thursday expiration.

The Senate bill passed by voice vote Thursday would prohibit state and local governments from taxing any telecom-related services that let users connect with the Internet. The legislation also covers some ancillary services. As proposed by the Senate bill, the moratorium would last through 2014. The House bill extends the moratorium through 2011.

First enacted in 1998 – and renewed after some debate in 2004 – the existing law prevents state and local governments from taxing "a service that enables users to access content, information, electronic mail or other services offered over the Internet," stated a report by CNET News (CNET).

Under the Senate bill, states that had Internet-related access taxes in place before the taxation moratorium originally took effect could continue to keep the levies in place. States can also continue to tax Internet services – indirectly – if laws permitting the taxation of companies’ gross income or recepits had already been in place when the Internet-tax moratorium was originally enacted. If the tax ban were allowed to expire, states would be allowed to assess taxes on digital subscriber line (DSL), cable modem, wireless and even BlackBerry-messenger-type data services.

Whenever the bill has come pu for renewal, both local and state officials have lobbied hard to keep the ban from becoming permanent, arguing that it is best that the policy remain flexible, so that states can keep re-assessingn whether these taxes are necessary to collect for their fiscal health. To date, lawmakers have seemed to agree.

State governments say they also are opposed to any legislation that removes the “grandfather” provision of the tax ban, as that allows states that were already levying Internet access taxes before the federal law took effect. At the present time, seven states fall into that category, said the National Governor’s Association.

Organizations such  as the NGA have voiced concerns that telecommunications firms are taking advantage of the moratorium law to avoid having to pay taxes on Internet access services offered via telephone or cable TV. There are also concerns on this front that the moratorium be extended to such new services as Internet telephony (Voice over Internet Protocol, or VoIP). Meanwhile, Internet access providers have complained that the existing law’s definition could create a loophole allowing Internet backbone providers to be taxed. The groups have said they were able to craft language that addresses those concerns and would be satisfied to see it in the proposal’s final version.

News and Related Story Links:

• NetworkWorld.com/IDG News Service:
  Senate Passes Seven-Year Internet Tax Moratorium.

• C/netNews.com:
  Senate OKs 7 More Years of Tax-Free Net  Access, E-Mail.

• C/netNews.com:
  New Net Taxes Could Arrive in November.

• C/netNews.com:
  Senate OKs Four-Year Ban on Net Access Tax.

• C/netNews.com:
  House OKs Four-Year Extension of Net Tax Ban