H.R. 49 & S. 150 Internet Tax Non-Discrimination Act A THREAT TO LOCAL GOVERNMENTS FISCAL HEALTH AND RIGHT-OF-WAY MANAGEMENT AUTHORITY

The Law Today -- Internet Tax Freedom Act ("ITFA") Internet Tax Freedom Act [47 U.S.C. § 151] banned taxes on Internet access, discriminatory taxes on purchases made over the Internet, and the double-taxation (by two different states, for instance) of Internet commerce. Expired in 2001, but was extended until 11/1/03.

H.R. 49 & S What They Do Permanently extend the moratorium on Internet taxes set to expire on 11/1/03. Expand ban on Internet access taxes to include wireless, satellite and new advancements in technology to provide access to Internet services. In expanding ban, bills capture telecommunications services.

Capturing Telecommunications Services Internet tax ban had carved out telecom services from tax ban, but bills would expand ban to any technology to extent such services are used to provide Internet access. Result is that franchise fees, sales taxes and/or rights-of-way users fees could be jeopardized to the extent provider can claim percentage of network is being used to provide Internet access.

Potential for Mischief While threat and loss of revenue would be immediate, damage could grow exponentially over time as operators take advantage of the tax policy by migrating services to Internet as a means to avoid franchise fees or other fees in lieu thereof, sales taxes, & universal service fund contributions

Where the Bills Stand Now H.R. 49 –Adopted on Suspension Calendar 9/16/03. S. 150 –Approved as amended by Senate Commerce Committee on 7/31/2003 but jurisdiction was retained to permit further amendment. –Referred to Finance Committee 9/24/03 and review must be completed by 10/24/03.

Local Government's Response TeleCommUnity Letter was sent to to Senate Commerce Committee with suggested amendment. Sample letters are at org/issues/internettaxation. html Suggested Language: SEC. 5 No Impact on Rights of Way Fees or Franchise Fees Nothing in the Internet Tax Freedom Act shall prevent the imposition or collection of any fees or charges for use of a state or local governments right-of-way, taxes in lieu of right-of-way fees, or sales and use taxes on telecommunications services. Nothing shall affect or void the terms of any existing franchise as authorized by Sections 253, 621 or 622 of the Communications Act of 1934, as amended.

Potential Loss of Revenue to Local Government By 2006 Could cost state and local governments as much as $8.75 billion annually Source: Multistate Tax Commission. Every $1 billion lost in state & local revenue equals: 19,895 Police Officers 19,922 Firefighters 27,027 Hospital Workers 24,762 School Teachers 17,358 College Professors