TIME FOR COMPROMISE ON INTERNET TAX MORATORIUM IS PAST, ALLEN AIDE
The next step toward resolving the Internet tax moratorium in the Senate will be an up-or-down vote on the proposed bill and an opposing amendment, not a compromise, a key Hill staffer said Wed. Frank Cavaliere, adviser to S-150 sponsor Sen. Allen (R-Va.), told the National Conference of State Legislatures that “there is not a compromise out there, there will not be a compromise.” “We would still like to see a compromise reached,” said Rachel Welch, counsel for Senate Commerce Committee ranking Democrat Hollings (S.C.), but she said based on Cavaliere’s comments “we may have gotten to a point where there is an unbridgeable divide.”
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The moratorium on discriminatory Internet taxes and access taxes expired Nov. 1 but the Senate was unable to act on legislation to extend it. Allen and Sen. Wyden (D-Ore.), author of the 1998 and 2001 moratoriums, wanted to make the moratorium permanent and exempt DSL from taxation, similar to HR-49 by House Select Homeland Security Committee Chmn. Cox (R-Cal.) that cleared the House earlier this year. Hollings and several former governors, including Sens. Alexander (R- Tenn.), Carper (D-Del.) and Voinovich (R-O.), feared the DSL language actually had broader implications that could cost states significant tax revenue down the road.
Cavaliere said Allen’s plan now was to force a vote both on S-150 and an amendment Allen opposed by Alexander and Carper. That may involve Allen’s pressing for a cloture vote to stop an Alexander filibuster, which would require the cooperation of Senate Majority Leader Frist (R-Tenn.) against his fellow Tenn. senator. Cavaliere told us that Allen hadn’t received from Frist a date for potential action, but said Allen would use any parliamentary means at his disposal to press for action as soon as possible, just as Alexander did in preventing a vote on S-150.
Welch said the Alexander-Carper amendment was a reasonable compromise. It wouldn’t make the moratorium permanent, but it would have banned taxes on DSL access for consumers and blocked gross receipts taxes, among other taxes. But Cavaliere, who said Allen’s door always had been open to negotiations, suggested Alexander-Carper wasn’t a reasonable compromise. “We've met with Rachel almost every other day for almost 6 months,” and as a result drafted a manager’s amendment to S-150 that insisted the DSL language was narrow, but opposition remained. When Cavaliere said “even the language they've put forward, they don’t want,” Welch’s jaw visibly dropped, and she interrupted to insist that wasn’t the case. If the moratorium were to be permanent, she said, it would have to be “perfect” and not have an “overarching theme of uncertainty.” If uncertainty were to remain, the bill would have to be temporary to allow Congress to make corrections down the road.
Welch and others argued that S-150 could exempt all voice over IP (VoIP) service from taxation. Ellen Marshall of Patuxent Consulting, representing the MultiState Tax Commission (MTC), said voice services increasingly were migrating to VoIP, and a tax exemption on that service could be crippling long term to state tax bases. But Scott Mackey, an economist with Kimbell Sherman Ellis, said “this bill is absolutely silent on voice over Internet protocol. It has nothing to do with it.” Mackey said “the FCC will have to decide how VoIP is handled.”
“What we were not trying to do was exempt voice, voice over Internet protocol or disrupt the regulatory environment,” said Sprint Asst. Vp-State & Local Tax Mark Beshears. He said 14 telecom companies had come together in agreement on the language amending S-150 to exempt DSL to create tax neutrality for broadband. “It is not an issue where the telecom companies are trying to do a big land grab,” Beshears insisted, although Hollings and Alexander have blasted telecom lobbyists for pushing the DSL amendment.
There continued to be debate over the extent to which the new language of S-150 would affect state tax bases. Estimates have run into the billions, with the MTC estimating losses of $4-$8.75 billion by 2006. Welch acknowledged it was unclear what the losses actually would be, given uncertainty as to how the bill would be interpreted by taxing authorities and courts, and how technology might evolve. That very uncertainty, though, argued against a permanent moratorium, she said. Cavaliere said that while S-150 opponents originally were talking about billions in losses, “now we're down to about $200 million max.” That figure, he said, came from the Congressional Budget Office estimates of a maximum of $120 million in losses from the elimination of grandfathering for 10 states, and a maximum of $70 million for states that had begun to tax DSL. But W.Va. State House Finance Committee Vice Chmn. John Doyle (D-Jefferson) said “so what that someone overestimated” the tax losses initially: “We can still use the $200 million.”
When asked by Md. State Sen. Patrick Hogan (D-Montgomery County) why there should be a ban on Internet taxes at all, Cavaliere appeared surprised by the question, and after a hesitant beginning, eventually said a tax ban would mean lower Internet access fees, permitting more people to have Internet access. Hogan responded that Internet access fees were dropping due to competition, more than offsetting discouraging taxes. To Cavaliere’s argument that the Internet “levels the playing field for education,” Hogan said: “Why not ban taxes on books so everyone has access to books?”