House votes to ban Net access tax

By Doug Abrahms
Gannett News Service

WASHINGTON — The House voted yesterday to ban taxes on Internet access services, including those collected in Hawai'i, making permanent a temporary ban enacted in 1998 in hopes of stimulating Internet growth.

The House bill would permanently prohibit cities and states from taxing dial-up and high-speed phone and cable modem Internet services and extend the tax ban to newer high-speed and wireless services.

"Today we establish a consistent national policy of not taxing Internet access through this bill," said Rep. Chris Cannon, R-Utah.

House members dropped an exemption that has allowed 10 states to collect Internet access taxes from businesses and consumers.

The Congressional Budget Office estimated that those states would lose a combined $80 million to $120 million a year, although experts say the numbers aren't exact.

In Hawai'i, general excise tax collections from Internet services that would be banned under the bill generate an estimated $4 million a year, according to the state Department of Taxation.

Lawmakers from the 10 states that opposed the bill said it strips revenues from state coffers at a time of budget shortfalls. A Senate bill would give the 10 states three years to continue collecting these taxes before a full ban would take effect.

However, exempting taxes on Internet services may not be easy because companies increasingly bundle television, long-distance and wireless communications services with Internet access.

"That may be difficult," said Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i. "That's where I would err on the side of taxing, rather than exempting."

The states that would lose the right to tax Internet access in addition to Hawai'i are: New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington and Wisconsin.

The money the states are losing could be more than made up if Congress moves to make it easier for states to tax purchases made over the Internet.

Advertiser staff writer Sean Hao contributed the information in this report dealing with Hawai'i.