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US House approves permanent ban on Internet access taxes

The legilsation would permanently extend a ban that's been in place since 1998

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The U.S. House of Representatives has voted to permanently extend a ban on Internet access taxes that Congress has temporarily extended three times over the past 16 years.

The House, in a voice vote Tuesday, passed the Permanent Internet Tax Freedom Act, over the objections of some Democrats. In addition to permanently banning states and local governments from taxing Internet access, the bill would ban any other form of Internet-only taxes, although its aimed primarily at taxes on Internet access service.

The bill does not address Internet sales taxes, a separate issue that Congress has debated for several years. The House has failed so far to act on a bill, passed by the Senate in May 2013, that would allow states to collect sales tax on products sold over the Internet.

The Senate would have to pass the access tax moratorium bill for it to become law. A temporary ban expires on Nov. 1.

The legislation also eliminates an exception allowing seven states, including Texas and Ohio, to collect taxes on Internet access. The grandfather clause in the temporary extensions to the ban applied to states that had taxes in place before Congress passed the first tax moratorium in 1998.

The elimination of the grandfather clause will cost Texas US$350 million and Wisconsin $127 million in tax revenue each year, said Representative John Conyers Jr., a Michigan Democrat. The legislation will "severely impact" the grandfathered states' budgets, and will limit the ability of all states to raise tax revenue in the future, he said.

The temporary tax bans included the grandfather clause to allow states that taxed Internet access time to find other sources of revenue, said Representative Bob Goodlatte, a Virginia Republican. "It's been 16 years -- time enough to change their tax code," he said.

Many U.S. residents could see tax increases if the bill doesn't pass, Goodlatte said. "This legislation prevents a surprise tax hike on Americans' critical services this fall," he said. "The last thing Americans need is another bill on their doorsteps."

Many Republicans and some Democrats argued the tax ban should continue as a way to encourage the growth of the Internet, but some opponents questioned whether the Internet still needs tax protections.

"The bill ignores the fundamental nature of the Internet," Conyers said. "The act was intended as a temporary measure to assist and nurture the fledgling Internet that back in 1998 was still in its commercial infancy. Yet, this bill is oblivious to the significantly changed environment of today's Internet."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.



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