US House votes to ban Internet access taxes permanently

The U.S. House of Representatives has passed a bill to permanently extend a 17-year moratorium on taxing Internet access and other online services.

By voice vote on Tuesday, the House agreed to pass the Permanent Internet Tax Freedom Act, which would prohibit states from taxing Internet access and from levying any new taxes that target Internet services but have no offline equivalent. The bill would prohibit taxes on bandwidth or email, for example.

Congress has passed temporary moratoriums since 1998, and the current moratorium is set to expire Oct. 1.

The House action sends the bill to the Senate. Some senators have resisted calls for a permanent tax moratorium in recent years.

Under the Permanent Internet Tax Freedom Act, Congress could still let states force Internet retailers to collect sales tax. Retail groups have been pushing Congress to allow online sales taxes for years, but lawmakers have resisted because of potential complications with collecting the tax.

Supporters of the bill argued new taxes could slow the adoption and growth of Internet commerce. If the tax moratorium is allowed to expire, Internet users would be hit with a "substantial tax burden," said Representative Bob Goodlatte, a Virginia Republican and bill sponsor.

The average tax rate across the U.S. on other communications services, such as mobile voice, is more than 13 percent, and Internet users could expect the same taxes if the moratorium expires, he said.

New taxes would hit poor U.S consumers especially hard, said Representative Anna Eshoo, a California Democrat. "We want to encourage expanded broadband adoption," she said. "If you tax it, you're going to shrink it."

Some Democrats objected to a permanent tax moratorium. Past moratoriums have allowed a handful of states that had Internet access or ISP taxes before 1998 to keep them, but the new legislation ends that grandfather clause. The 10 states allowed to tax Internet access would lose about US$500 million a year in revenue, said Representative Sheila Jackson Lee, a Texas Democrat.

States with Internet access taxes include Texas, Ohio, Wisconsin and Tennessee. The bill will "severely impact" the budgets of the grandfathered states, with Texas losing the biggest amount, Jackson Lee said.

The Retail Industry Leaders Association, a trade group, called on the Senate to pass Internet sales tax legislation in addition to the moratorium.

"Sales tax parity should be addressed as part of legislation extending the moratorium on taxing Internet access," Jennifer Safavian, the group's executive vice president for government affairs, said by email. "Retailers support keeping Internet access tax free while closing the online loophole that essentially subsidizes online-only retailers against their brick and mortar competitors."

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.