UPDATE 1-U.S. House backs permanent ban on Internet access taxes

Tue Jul 15, 2014 3:01pm EDT

(Adds background, lawmakers' comments)

By Kevin Drawbaugh

WASHINGTON, July 15 (Reuters) - The U.S. House of Representatives voted on Tuesday to ban permanently any taxation of Internet access, a prohibition that is temporary and currently set to expire in 16 weeks.

In a move opposed by some Democrats and state and local governments, the House approved a bill that would bar state and local governments from enacting Internet connection taxes.

The approval came on a voice vote, sending the legislation next to the Senate, where it also has bipartisan support.

The bill does not involve state taxation of online shopping purchases, which is a different issue. Rather, the Permanent Internet Tax Freedom Act addresses Internet access.

Congress in 1998 approved a temporary moratorium on state and local governments imposing any new taxes on Internet connections. This ban has been extended three times, most recently in 2007, but is set to expire on Nov. 1.

When the moratorium was first imposed, it grandfathered, or allowed to remain in place, a handful of taxes that were established before Oct. 1, 1998. That meant some states - including Texas, Wisconsin and Ohio - that were already taxing Internet connections could continue doing so.

Some did, and for them, especially Texas, the latest bill would put an end to an important government revenue source, some Democrats said during debate on the House floor.

Drawn up by Republican Representative Bob Goodlatte of Virginia, the bill is opposed by a number of lobbying groups that represent states and localities, including the National League of Cities, and several large labor unions.

The Federation of State Tax Administrators estimated that states and localities could lose at least $500 million a year in tax revenues if the moratorium were made permanent. Texas alone would take a hit of $358 million a year.

In a joint statement after the House vote, five Republican and Democratic lawmakers said: "This permanent ban is crucial for protecting access and opportunity for Americans in our growing digital economy. We hope that the Senate promptly acts on this vital legislation before the November 1st deadline."

The Goodlatte bill also would extend permanently the 1998 moratorium on "multiple or discriminatory taxes on electronic commerce." This is meant to prevent a consumer from being taxed multiple times on the same online purchase by multiple states and to prevent states from taxing online purchases specifically.

When it was approved at the committee level last month, the Goodlatte bill was supported by high-tech companies, including AOL Inc, eBay Inc, Facebook Inc, Oracle Corp, VeriSign Inc and Yahoo Inc. (Reporting by Kevin Drawbaugh; Editing by Jonathan Oatis and Dan Grebler)