The U.S. Congress should think twice about making a temporary moratorium on Internet access taxes permanent, groups representing local governments said Tuesday.

Representatives of the National Governors Association, the American Federation of State, County and Municipal Employees (AFSCME) and the Oklahoma Tax Commission said they could support another temporary extension to the ban on Internet access taxes and other taxes unique to the Internet.

"We would urge this committee to use extreme caution whenever you take action that infringes upon the rights of states to set their own tax policy," Jerry Johnson, vice chairman of the Oklahoma Tax Commission, told the House of Representatives Judiciary Committee's Subcommittee on Commercial and Administrative Law.

Many states face difficulties in raising other taxes to pay for services, Johnson said. Congressional bans on certain taxes impede state governments' abilities to keep their tax systems "fair and broad," he said.

Three bills in Congress would permanently extend the ban on Internet-only taxes. The current moratorium expires Nov. 1.

Congress shouldn't take away the ability of local and state governments to raise taxes and pay for essential services like police and firefighters, said Mark Murphy, a fiscal policy analyst with AFSCME. Two recent studies, including one by the U.S. Government Accountability Office, suggested that the tax moratorium has no real effect on the number of people buying broadband access, even though congressional supporters say broadband adoption is a major reason for the ban, he said.

Others at a hearing on the Internet tax moratorium disagreed, saying higher broadband costs would hurt adoption.

The average U.S. family already pays US$250 a year in taxes on communications services, said John Rutledge, senior fellow at The Heartland Institute, a Chicago-base free market think tank. "If you release the moratorium, I think you're going to have very major tax increases," he said. "That's something that would be detrimental to productivity and [economic] growth."

Scott Mackey, an economist at government relations and consulting firm Kimbell Sherman Ellis, agreed. "As an economist, I have to believe taxes do matter," he said. "Clearly, taxes and prices do matter to consumers."

If Congress does extend the moratorium, it should make clear that other communications bundled with Internet access, such as VOIP (voice over Internet Protocol) service are not exempt from taxes, said Oklahoma's Johnson.

Murphy and David Quam, director of federal relations for the National Governors Association, said their organizations would support temporary moratoriums of two to four years.

But Representative William Delahunt, a Massachusetts Democrat, and other subcommittee members said they support a permanent ban. Internet access taxes would hit poor people the hardest, several subcommittee members suggested.

Delahunt also questioned numbers from state governments suggesting the ban costs them billions of dollars a year. "What we're talking here is chump change when we're talking about the revenue sources of the states," he said.

IDG News Service

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