LATER THIS month, the Senate is expected to vote on a bill, S. 150, which would make permanent the ban on taxation of Internet access by the states that is scheduled to expire Nov. 1. The bill, authored by Virginia Sen. George Allen, represents an enlightened approach of letting the free market, absent burdensome state taxation, help create a bridge to the new information age as well as stimulate investment and industry.
Of course, forever prohibiting taxes on Internet access doesn't play well for those state government officials who are strapped for cash in their own budget impasses and desperate for new revenue streams.
Some argue that the federal government has no right to interfere with states' ability to tax activities within its borders. But while service providers might be located within a given state, the Internet is the clearest-cut example of interstate commerce (even international commerce) in existence. As a result, the right of Congress to make the moratorium is indisputable.
What's more, state governments shouldn't look to an Internet tax to bail them out of budget situations they created. Even amidst the economic downturn and appearance of government deficits, state spending still has increased. Whatever amount of money states might gain by taxing Internet access would still not meet the ends of exorbitant state spending. States should look within and cut bloated programs rather than attempt to overstep their Constitutional bounds.
The permanent moratorium on Internet access taxation is a key component of bridging the digital divide of haves and have-nots. While 45 percent of Americans have Internet access, this percentage is largely concentrated in middle to upper-class families. According to the U.S. Department of Commerce, families with income of $75,000 or higher are twenty times more likely to have Internet access than those at the lowest economic rungs. In light of this, a state tax on Internet access amounts to constructing a barrier for lower-income families to join the new Information Age. Prohibiting taxation of access, along with other tax incentives for service providers to extend their infrastructure, will do more to solve this problem than anything else.
The relevance of this moratorium extends to us as University students. For students living off-Grounds who have an Internet connection, which is nearly everyone, it means that Gov. Warner cannot further increase the cost of attending the University by hiking up the price paid for something that is vital to academic pursuits and daily life. Couple that with the lack of funding for the University in the state budget, and taxation would amount to a further testing of just how much state irresponsibility college students can take.
Not considering an Internet access tax, there are already too many taxes on telecommunications to stifle growth. Considering only state and local taxes, there are 15 unique taxes on telecommunications companies and consumers in any given state. Add to this the myriad of federal taxes already on the books, and the tax rate on telecommunications services is 18 percent. The National Governors Association's report on telecommunications taxation says, "These taxes and fees not only burden the telecommunications consumer, but also place a large administrative burden on national companies." With so many taxes on information exchange being levied on both consumers and providers for information services, it makes no sense to break with current course and add further burden.
This bill is not only a logical extension of the current moratorium, but also a useful clarification of the previous moratorium. Most importantly, it would eliminate grandfathering-in of state Internet access taxes that were made before the original 1998 temporary moratorium.
There are issues related to a tax moratorium that are still unclear, such as the subtle, but important distinction between information service and telecommunications service. As technology evolves at breakneck speed, other clarifications are sure to rise up. But, as Sen. Allen has said, "That is something for the FCC," to handle.
Continuing the moratorium on Internet access taxes is not going to be a panacea that will stimulate the economy by itself; the already-excessive taxes on the industry prevent that. But nevertheless, the moratorium is an important step in making sure that these industries are free to grow, that all people have an equal access to the technologies and the benefits they offer, and, in a symbolic way, showing the American public that their government is serious about overburdening them through excessive taxation.
(Jim Prosser's column appears Tuesdays in The Cavalier Daily. He can be reached at jprosser@cavalierdaily.com.)
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