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Legislation to prevent federal Internet tax

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A U.S. senator said today that he will soon introduce a bill that would prevent Congress from extending a long-standing telecommunications tax to Internet access.

Sen. George Allen (R-Va.) said legislation is needed after Congress' Joint Committee on Taxation in January suggested an expansion of a 3% federal excise tax (FET) on telecommunications to Internet traffic, including e-mail and data services. Allen plans to introduce his bill, which would exempt Internet access from the FET, early this week.

The FET, first enacted in 1898 to fund the Spanish-American War, raises about $6 billion a year for the U.S. government. At points during the past 107 years, the tax has been eliminated, reinstated and raised to 25%. Congress made the tax, which applies to local and long-distance calls, permanent in 1990.

"We won the Spanish-American War over 100 years ago," Allen said at a news conference. "This tax represents an unnecessary service tax on consumers."

The Joint Committee on Taxation in January presented three options for the FET, one being the proposal to tax all Internet traffic. A second option would extend the FET just to voice traffic over the Internet, with a third option redefining how long-distance calls are taxed, with no taxes on Internet data or voice.

In November, Congress passed the Internet Tax Nondiscrimination Act, which extended a moratorium on new Internet-only taxes passed by state and local governments. But that bill, also sponsored by Allen, didn't apply to the existing FET, Allen said. His new bill wouldn't prohibit taxes on voice-over-IP (VoIP) calls. That issue would be addressed under a separate bill likely to be introduced later.

The January report from the Joint Committee on Taxation noted that the growth of wireless voice services and the Internet have created confusion about how the FET should be applied. "The present communications excise tax provisions were enacted before the development of most modern technology -- the growth of computers and new electronic means of communication," the report said. "The proliferation of wireless communications technology and the Internet, and in particular broadband access, has blurred the lines between 'data' and 'voice' and between the functions of transmission and application. Consequently, service providers have found it increasingly difficult to determine which services are taxable communications services and which are nontaxable information services." continued>>

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