House Votes to Make ISP Tax Moratorium Permanent

But grandfathered states may get phase-out, rather than flash-cut
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The House Tuesday passed a bill that would make permanent the ban on taxing Internet access.

A temporary ban has been regularly renewed since it was first adopted in 1998, but this bill would make that ban permanent. As currently constituted, it would also remove the grandfathering of ISP taxes on a handful of states, though that could change in a Senate version or conference between the two bills.

The passage of H.R. 3086, the Permanent Internet Tax Freedom Act (ITFA), came on a voice vote without the representatives having to record their votes. But that easy passage belied some of the strong opposition to the bill in floor speeches before the vote, particularly from representatives of grandfathered states. Arguments for the permanent moratorium included that it was saving consumers from discriminatory taxes that could disproportionately affect the poor and discourage broadband use. Arguments against included that it was preempting states' rights to determine the best way to raise money and to "fill the potholes and clean the streets."

The Internet Tax Freedom Act has been extended three times since 1998. It is currently scheduled to expire Nov. 1, 2014.

"We applaud Chairman Goodlatte, Congresswoman Eshoo, and the House of Representatives on today’s strong, bipartisan approval of the Permanent Internet Tax Freedom Act (HR. 3086)," said National Cable & Telecommunications Association president Michael Powell. "With the current ITFA tax moratorium expiring Nov. 1, a failure to extend before Congress recesses in September will risk driving up the cost of Internet connectivity for tens of millions of American consumers and businesses."

“Keeping Internet access free from state and local taxes has been a fundamental principle since the Internet was introduced to American consumers," he said. "Reversing this course which has sparked such tremendous economic growth and numerous other benefits would be a tragic mistake. We urge the Senate to quickly take up and pass in July this important, bipartisan legislation so that American consumers and businesses will continue to be protected from any additional taxes and fees that could raise the price of Internet access and slow the rapid adoption of broadband services.”

Cash-strapped states and local governments are always looking for new revenue sources, but the bill would make sure that would not include taxes on access to the Internet. That would make sense given that the government has made a priority of promoting Internet access and adoption and keeping the cost down. Several Democrats, led by Rep. John Conyers (D-Mich.), spoke out against the bill, while others, led by Anna Eshoo (D-Calif.) spoke in support.

Republicans were generally supportive, though Rep. Joe Barton (R-Texas) was concerned that the bill did not extend the grandfathering of states already collecting ISP taxes, including his home state of Texas.

Barton pointed out he was an original sponsor of the 1998 bill, but said that getting rid of the grandfather clause would cost Arlington, Texas, $1 million in connection fee taxes. He said he had been led to believe that the grandfather clause would be in the new bill, and asked why it wasn’t. Rep. Bob Goodlatte (R-Va.), who spearheaded the legislation, pointed out that the grandfather was supposed to eventually sunset, that those states had had 16 years to prepare, and it was time for it to expire. “Our goal is a clean, permanent moratorium," he said, but left some wiggle room.

Barton asked whether preserving the grandfathering provision might be added to a Senate bill or in conference. Goodlatte said that if Barton could engineer a phase-out of the clause he would “work with him.”

Rep. Sheila Jackson Lee (D-Texas) joined Barton in expressing her concerns about the lack of grandfathering and the impact on the $280 million a year Texas was collecting in Internet access taxes.

A bipartisan group of House committee and subcommittee chairmen and ranking members introduced the bill in September 2013. It is backed by cable and telco ISPs.

The House Judiciary Committee approved the bill last month.

The vote was 30 to 4 and followed the defeat of an amendment proposed by ranking member Conyers that would have extended the moratorium another four years and removed the provision eliminating the grandfathered taxes of seven states who had those access taxes in place before the 1998 passage of the initial moratorium.

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