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Taxing the Net's Onramps

One incentive for e-commerce to grow is that Internet access remains mostly affordable and tax free. In fact, the 1998 Internet Tax Freedom Act worked well to do that.

But the act expires Oct. 31, and the authors of the original bill want to make permanent its provision banning access fees to the Net. The House already has agreed with them, and President Bush supports the idea.

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Unfortunately, the Senate could let the bill lapse because groups lobbying for state and local governments don't like limits on their taxing authority. But the Internet is obviously interstate commerce, allowing Congress to act. Without the existing ban, most states might rush to impose a tax on access.

Since the fastest growth on the Internet is among low- and middle- income groups, each year the average income level of users goes down. An access tax would hit low-income users harder, slowing the Net's growth.

And taxing access isn't the revenue panacea states seek. Based on the 10 states that currently tax access (they were not included in the 1998 ban because they were already taxing access), such a tax now makes up, on average, one-tenth of 1 percent of revenues. An access fee is also double-taxation since individuals and businesses already pay taxes on phone and cable service to reach the Net.

Congress needs to help the Internet grow, unencumbered by new taxes.


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