House backs 4-yr extension of Internet tax ban

By Peter Kaplan

WASHINGTON (Reuters) - The U.S. House of Representatives approved legislation on Tuesday to extend a moratorium on state Internet access taxes for four years, brushing aside calls by some lawmakers for a permanent ban.

The House voted 405-2 to continue the ban, which is scheduled to expire on November 1.

Attention now shifts to the Senate, where similar legislation has been stalled in the Senate Energy and Commerce Committee over a dispute on whether to extend the ban temporarily or permanently.

The House vote provoked criticism from some lawmakers, including many Republicans, who said a permanent ban on Internet taxes is needed to spur more investment by broadband service providers.

They complained that House Democratic leaders had blocked a vote on a permanent moratorium.

"It would have passed by an overwhelming margin. It would have supplanted the legislation that we're having here on the floor today," said Republican Rep. Bob Goodlatte, of Virginia, before the House vote.

Bush administration officials also urged that the ban be made permanent.

"Although we recognize that a temporary extension is better than letting the moratorium expire, we are extremely disappointed that the legislation does not extend permanently the moratorium on Internet access taxes ...," Treasury Secretary Henry Paulson and Commerce Secretary Carlos Gutierrez said in a joint statement before the vote.

But House lawmakers who support the four-year extension said it was pointless to approve a permanent moratorium because it did not have the support needed to pass in the Senate.

"We are doing what is necessary to move a bill," said Democrat Mel Watt of North Carolina.

The four-year extension is backed by the National Governors Association. It includes a "grandfather" clause that would allow a handful of states to continue imposing Internet taxes -- those states that already had a tax enacted in 1998.

The state tax ban has been in place since 1998, and was last renewed by Congress in 2004 for three years.

Internet service providers say the price of Internet access could rise by as much as 17 percent if the moratorium on state taxes were allowed to expire.

The service providers had preferred a permanent Internet tax ban. But with time running out on Tuesday, they said they welcomed the House vote for a four-year extension.

"We urge the Senate to act quickly and send a strong bill to the president before Internet users face steep new taxes that could take effect in just two short weeks," Verizon senior vice president Peter Davidson said in a statement.