24 October 2003

Senator George Allen on Taxation of Internet Transactions

Op-ed column by Virginia Republican Senator

(This column by Sen. George Allen, Virginia Republican, who is chairman of the Senate Foreign Relations Committee's Subcommittee on European Affairs, was published in the Washington Times August 24 and is in the public domain. No republication restrictions.)

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Accessing the Internet
By George Allen

The Senate will soon vote on The Internet Tax Nondiscrimination Act (S. 150), my bill that permanently prohibits taxes on a consumer's ability to access the Internet. This law should and must pass to advance Internet access and digital opportunity for all people in the United States.

In less than one decade, the personal computer and the Internet have truly transformed our nation into the Information Society of the 21st Century, a society in which knowledge and information are synonymous with opportunity, prosperity and better quality of life. The Internet has personally empowered millions of Americans as consumers, entrepreneurs and citizens in our democracy.

More Americans are empowered by the Internet principally because the United States has consciously allowed Internet innovators, entrepreneurs and consumers to be free from onerous tax and regulatory burdens. Our national pro-Internet policy has been anchored at the federal level by a five-year moratorium against regressive taxes on Internet access. Such taxes would drive up the cost of access for consumers and their families and would raise regulatory burdens and barriers to innovation for Internet Service Providers (ISPs), software developers and online commerce.

Congress first enacted the tax moratorium with the Internet Tax Freedom Act of 1998, after dozens of State and local governments, eager to tap the economic potential of the Internet, began to impose disparate tax theories, rates and regulations on ISPs and consumers. Nobody saw a panoply of State, local or even federal taxes and compliance regulations on the Internet as constructive. Quite the contrary, an evolving labyrinth of tax and regulatory burdens was deemed anti-growth because it would strangle the new technologies, discourage innovation and stifle outgrowth of the Internet to more Americans.

Unfortunately, the current moratorium on Internet access taxes as well as multiple and discriminatory taxes, is temporary. First enacted for three years, the moratorium was extended for two additional years in 2001. Now, the federal moratorium that has been responsible for such dramatic growth of the Internet and the extension of Internet access to more than 127 million citizens (approximately 45 percent of our country's population) is scheduled to expire at the end of this month.

Long-term tax freedom for the Internet is necessary if America is going to achieve its well-established goal over the next decade of empowering all citizens with access to the Internet in this information society. Over the last two years, some local commissars astonishingly took the position that high-speed Internet access technologies could be taxed notwithstanding the federal moratorium because, they reasoned, digital subscriber line (DSL) service was a taxable service like telephone service. My legislation updates and clarifies the original Internet Tax Freedom Act to ensure that all Internet access -- whether in the form of dial-up, DSL, cable modem, satellite, wireless, or any other technology platform used to access the Internet -- is covered by the Internet tax moratorium and therefore exempt from state and local taxation.

Failure to pass the Internet Tax Nondiscrimination Act (S. 150) would leave DSL service and other high-speed access technologies open to taxation. In many states and localities, taxes on Internet access can go as high as 25 percent, raising the cost of a high-speed DSL line as much as $10 to $15 each month, or $120 to $165 per year just to have access to the Internet in a family's home. Such taxes would raise the cost of Internet access and discourage average Americans on tight budgets from joining the online world. Such tax burdens also would inhibit full rollout of competitive Internet access, including high-speed access technologies like DSL, to all parts of the country.

While we can be very proud of getting nearly half of the American people logged on to the information superhighway over the last decade, we cannot stop there. Our national goal must be to extend Internet access and digital opportunity to all citizens. According to the Pew Internet and American Life Project, Hispanics and African-Americans represent the fastest-growing segments of the online population. Measured in terms of income, Internet use is growing fastest in households making less than $50,000 per year. For the roughly 49 percent of Americans who still are not online, keeping access affordable -- and that means keeping access free of taxes -- is imperative.

Taxes on Internet access, especially on high-speed technologies, would only drive the price of those services beyond the ability of the Internet have-nots to purchase such service. That is why it is so important for the Senate to pass my S. 150 to make the federal prohibition against taxes on Internet access permanent -- before the current moratorium lapses and America's great strides in expanding Internet access are lost.

In a society -- indeed a world -- where quality of life and economic power are directly proportionate to one's access to knowledge, we must close the economic digital divide, rather than exacerbate it with state and local taxes. Enactment of the Internet Tax Nondiscrimination Act will be vital in achieving that goal.

(Sen. George Allen, Virginia Republican, is chairman of the Senate Foreign Relations Committee's Subcommittee on European Affairs.)

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(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)