Is a Temporary Moratorium on Internet Taxes Better for Keeping Pace with New Technologies?

It appears that Senator Lamar Alexander has a different tactic in his
opposition to a federal prohibition of the states ability to tax Internet
access (he’s been an ardent with his states’ rights rhetoric in the past). 

In support of a temporary ban, not a permanent one, he’s
saying that it’s in the public interest that Congress periodically review the
ban so that it can keep up with new technologies. He even says that "since
the moratorium was enacted in 1998, we’ve extended it twice while changing the
law substantially to meet changing technology." Um, not really. 

The Senator has it backwards about why we had to revise the
moratorium twice. It’s not to update the law for new technologies.
Instead, it’s to close loopholes that states have used to tax what the
Moratorium said they could not tax.

Note this excerpt from the House Judiciary Committee report: 

While it is true that Congress has made changes to the law
virtually every time it has extended the moratorium, those changes have largely
been directed at preventing states from circumventing the law….For
example, the definition of ‘‘Internet access’’ was modified in 2004 to prevent
states from taxing Internet access providers that purchase capacity over wire,
cable, fiber to connect end-users to the Internet backbone. That definition is
modified again in this bill, also to ensure that States do not tax the Internet
backbone. Why does Congress have to make this change again? Because eight
States (AL, FL,  IL, MN, MO, NH, PA, WA)
continue to tax the Internet backbone, despite Congress’ clear admonitions
to the contrary.

Now’s also a good time to remind the Senator that rural
areas of Tennessee aren’t going to get the next generation of broadband
buildout if new taxes suppress consumer demand. Here’s why:

If rural households are facing an extra $10 a
month in taxes for internet access, there are going to be fewer households
adopting.  It’s just economics.

When a network company decides where and when to invest in
building-out its network, they compare costs with the likely subscriber
base.  Low-density areas are expensive to build, and if the adoption rate
is low they can’t earn a return on investment.  A new tax that adds 15-20%
to the monthly cost of internet means fewer subscribers, so some areas are
going to slip to the bottom of the list for new deployment.  Again, it’s
just economics.

Bottom line is that many rural families won’t even have a
choice about broadband since the networks haven’t got around to deploying in
their communities. And it means fewer work-at-home opportunities for rural
folks, too.

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