Posted by : bpburnwal on Sep 27, 2003 - 07:35 AM General

WASHINGTON (AP) - State and federal lawmakers agree that Internet access should remain tax-free, but state officials said Wednesday a recently passed bill could have the unintentional effect of freeing the telecommunications industry from virtually all taxes.
The House last week passed legislation permanently banning taxes on Internet connections. The bill makes permanent a temporary freeze on the taxes, which will expire Nov. 1.

New language clarifies that all types of Internet access - from dial-up connections to high-speed DSL and cable modems - cannot be taxed.

The Multistate Tax Commission, an organization of state tax officials, said that language is too broad. They said it eventually could exempt the telecommunications industry from all state and local taxes as telecommunication companies gradually start using Internet technology to deliver all of their services.

The commission said the language could leave telecommunications businesses free from sales, excise, income and property taxes, and that states stand to lose between $4 billion and $9 billion a year by 2006.

``This came as quite a shock,'' said Jim McIntire, chairman of Washington state's House Finance Committee.

Lawmakers who wrote the bill said they look at the same words and see a different meaning.

``I think they are discussing a problem that does not exist,'' said Rep. Melvin Watt, D-N.C. ``It's hard for me to box with a shadow.''

Watt and other members of the House Judiciary Committee added the language to ensure that consumers who use broadband get the same treatment as those who use slower, dial-up connections. They also wanted to give future technology equal footing with current means of access.

Watt said he shared the language with a number of state and local organizations and he remains open to new ideas. But so far, he said, no one has proposed better language.

The state and federal lawmakers do not question each others' motives. Both sides say Internet access must remain tax free to make the technology available to the most consumers for the best price. They split over how telecommunications industry lawyers and courts will interpret the bill.

If courts decided to interpret the law to mean that services delivered through the Internet should be free of state and local taxes, the Multistate Tax Commission said consumers will lose.

``All those consumers are also taxpayers,'' said Dan Bucks, the commission's executive director. He said consumers would see their income taxes, sales taxes or property taxes rise to make up the lost revenue.