Cable or phone depends on taxes

[Aliette Guibert]

from
http://www.nytimes.com
(integral extract)
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Which possible influence to Europe? On freeboxes? and so on...
A.

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http://www.nytimes.com/2004/04/05/technology/05taxes.html?8dpc

Cable or Phone? Difference Can Be Taxing
By MATT RICHTEL

Published: April 5, 2004


re you paying monthly taxes on your high-speed Internet connection?
The answer, bizarrely, depends on whether you use a cable connection or a
telephone data line, even though the two services offer comparable access to
the Internet.
In Minnesota, for example, customers of Earthlink Inc., an Internet service
provider, who get broadband access from a cable modem pay no tax on the
service. But Earthlink customers who get their high-speed access through
telephone digital subscriber lines have to pay $3.10 a month in state and
local taxes and other surcharges. A similar tax distinction is made in 17
other states and the District of Columbia.
This odd situation has grabbed attention in the Senate, and is part of a
debate on whether to extend a tax moratorium on Internet services, an issue
the Senate may vote on this month. Senator George Allen, Republican of
Virginia, has strongly argued that state taxation of digital lines slows the
spread of high-speed broadband and unfairly distorts the market.
"You're giving the advantage to one technology over another," Senator Allen
said. "It's discriminatory taxes." He is sponsoring a bill that would ban
taxes on all forms of Internet access, regardless of the technology
involved, similar to a bill the House approved in September. But some
lawmakers and state and local government officials argue that taxes on
digital subscriber lines have become important sources of revenue.
Treating the two kinds of broadband access differently has its roots in the
1998 Internet Tax Freedom Act, which barred states from taxing Internet
services for three years to encourage the expansion of online commerce.
The tax moratorium, which Congress extended in 2001 and expired in November,
did not apply to "telecommunications services," industry experts said,
because Congress feared that phone companies would use the moratorium to
avoid paying tariffs like the universal service fee, which is used to
subsidize telephone service in rural areas.
Congress is considering whether to extend, or even make permanent, the tax
ban. Senator Allen's bill, which has passed out of the Commerce Committee,
appears headed for a Senate vote this month. A competing bill, sponsored by
Senator Lamar Alexander, Republican of Tennessee, may also see Senate
action.
During the moratorium, some states took the position that under the 1998 law
they were still allowed to tax digital subscriber lines provided by phone
companies because of the telecommunications exclusion.
Telephone industry representatives said it was difficult to generalize about
how much state and local taxes add to digital line costs, but it could be as
much as $4 a month. Cable and digital line services cost $30 to $50 a month,
with cable costing slightly more in most markets, analysts said. Lee
Goodman, a lawyer for Time Warner Cable and America Online, said Congress
excluded telecommunications services from the tax moratorium because it
wanted to draw a distinction between phone and Internet service. But Mr.
Goodman says, "Technology has vaulted ahead of law, thus forcing this
debate."
In the last five years, the distinction has become increasingly important
for state and local governments as well as for the telephone and cable
companies that are battling in the broadband market.
Cable companies control about two-thirds of that market, with phone
companies controlling a third. Although those shares are holding fairly
steady, phone industry representatives argue that the additional taxes place
their Internet services at a significant disadvantage to cable.
Taxes on digital subscriber line services are collected in 18 states and the
District of Columbia, according to the Center on Budget and Policy
Priorities, a nonpartisan research institute.
Senator Allen's bill would ban all taxes on Internet access services,
including digital subscriber lines. It would give state and local
governments three years to phase out Internet taxes.

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NYTimes.com > Technology

(Page 2 of 2)
According to the Congressional Budget Office, those governments collect
around $40 million a year in taxes on high-speed digital lines. But that is
not the only potential tax loss. The 1998 Internet law allowed 10 states,
which at that time were taxing Internet access from both cable and telephone
companies, to continue doing so. If Senator Allen's bill is adopted, those
states could lose $80 million to $120 million a year, the Congressional
Budget Office said.
Harley Duncan, executive director of the Federation of Tax Administrators,
said the loss in tax revenue would be devastating. "This really blows a hole
in state budgets," Mr. Duncan said.
Senator Dianne Feinstein, Democrat of California, said she had been
contacted by 121 cities and counties protesting a tax moratorium. "This will
eliminate bona fide revenues from cities and counties that are struggling to
stay afloat," she said.
The debate in Congress has split between those who want to nurture Internet
technology and those who want to protect state and local tax revenue, with
the sides supporting competing bills.
"Congress has taken a temporary ban on Internet access and turned it into a
giveaway program to the high-speed Internet industry," said Senator
Alexander, who has proposed legislation that would allow states that
currently tax Internet services to maintain those taxes.
"If Congress wants to give big tax breaks to the high-speed Internet
industry, Congress ought to pay for it," he said. Senator Alexander's bill,
however, would not allow states to add Internet taxes.
He acknowledged that under his legislation, digital line customers would be
subject to taxes while cable customers would remain exempt.
But he said that problem should be remedied by the Federal Communications
Commission, which has defined the cable industry as an "information service"
and the telephone industry as a "telecommunications service." If the
commission defined the industries comparably, he argued, they would be
subject to the same tax laws.
Senator Alexander compared efforts to roll back the states' ability to
charge taxes on digital lines to an "unfunded mandate."
"Americans are sick and tired of Congress coming up with expensive ideas,"
he said, "taking credit, then sending the bill to state and local
governments."

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