Congress Struggles over What To Do next over a Web Tax

Millions of Americans could be threatened with new state taxes on their Internet access this fall, as Congress struggles with how to extend an expiring moratorium on such levies. 

The 15-year-old Internet Tax Freedom Act prevents most states and local governments from taxing access. The moratorium enjoys widespread bipartisan support in Congress.

The tax reprieve, however, is set to expire on Nov. 1, and so far, lawmakers have taken few concrete steps to re-enact it as they debate whether to combine it with a separate, more controversial bill. That measure would allow states to collect sales tax from out-of-state online merchants. 

Proponents hope that combining the two bills will increase pressure on Congress to negotiate a compromise on the long-delayed online sales-tax legislation. 

"I think enough interested parties would insist that if we're going to pass that [Internet-access tax moratorium], this other component might be attached to it," said Rep. Jason Chaffetz (R., Utah), who is leading a House effort to reach a compromise on the sales-tax bill. He added: "To think the first would move unattached is fantasy land at this point."

Combining the two issues, however, could create a legislative logjam. Anticipating the possibility of a standoff, many telecommunications companies already are preparing to send out notices to their customers in July or August, notifying them that they might have to start paying state taxes on their Internet access if the moratorium expires.

"Washington always likes to walk right up to the edge and look in the abyss," said Jot Carpenter, vice president for government affairs for CTIA-The Wireless Association, an industry trade group. "If they fail [to reach a compromise], then I think there is a risk" that Internet services would become subject to new taxes.

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