Lawmakers Introduce Bills to Prohibit Internet Taxation

Congress has introduced legislation affecting a federal excise tax on phone bills dating back to the Spanish- American War in 1898.

One bill introduced by the Senate would prohibit the 3 percent tax on phone service from being extended to Internet access while a piece of legislation at the House of Representatives would repeal the tax altogether.

This is not the first time Congress has sought to abolish the tax on phone service, which was considered a luxury more than a century ago. In October 2000, President Clinton vetoed a large bill that would have, among other things, repealed the federal excise tax.

Sen. George Allen, a Virginia Republican, says his bill came partly in response to a report by the Congressional Joint Committee on Taxation. The committee asked whether the federal excise tax should be applied to all Internet communications, including e-mail, VoIP, Internet video conferencing and other data traffic.

In a report released in January affecting a wide range of issues, the Joint Committee on Taxation offers a proposal including three options for modifying the federal excise tax on phone service. Under the second option, voice services would be subject to the tax regardless of the technology, including VoIP.

“By expanding this tax, the federal government would hinder the investment and deployment of broadband services and would impact economic growth of small businesses especially in smaller towns and rural areas,” Allen said at the U.S. Capitol when he introduced the legislation.

Allen and other lawmakers also recently introduced a bill that would permanently ban taxes on Internet access and related services. A law banning Internet taxation is set to expire in 2007. It does not affect the taxation of Internet-based phone service or national telecommunications subsidies.

State and local governments collect approximately $18 billion from the communications industry, according to Tom Tauke, executive vice president of public affairs and communications with Verizon Communications Inc.