Ban on taxing Internet access to end Nov. 1 Issue splits Maine delegation; Snowe wants it made permanent for sake of economic growth

AUGUSTA – On Nov. 1, states will be in the clear to tax access to the Internet unless Congress acts to extend the ban or make it permanent as urged by some members of Congress.

Nearly a decade ago, Congress passed the first moratorium on taxing Internet access, and it was renewed in 2004. Sen. Olympia Snowe, R-Maine, the senior member of the state delegation, believes it should be a permanent ban.

“The Internet has played a pivotal role in our economic growth, and I think it will be critical to our future economy,” she said. “We have to continue to foster the growth of the Internet.”

Snowe said that taxing access would discourage investment by Internet companies and that rural states like Maine cannot afford to discourage any investments. She said legislation to make the ban permanent was scheduled for consideration by the Senate Commerce Committee and was pulled from the schedule by Democratic leaders.

“I think we would have the votes to pass a permanent ban, but we were not given the chance to work the bill,” she said.

The House voted 405-2 last week for a four-year extension after Democratic leaders blocked a vote on a permanent ban. Rep. Tom Allen, D-Maine, supported the extension and said he opposes a permanent ban.

“The permanent ban would really intrude on the efforts of states to reform their sales tax laws and how goods sold over the Internet are taxed,” he said. “The four-year extension is the way to go.”

Allen supports the efforts of many states, including Maine, to develop a sales tax agreement among the states to simplify the way goods sold on the Internet are taxed. The streamlined sales tax initiative has been under way for seven years, but has not succeeded in getting states to adopt the same definitions and procedures that would simplify the way sales taxes are assessed.

Current legal rulings require a company to have some business presence in a state before that state can require it to collect sales taxes on its products. For example, because L.L. Bean has a retail store in Virginia, that state can require Bean to collect sales taxes on goods sold to Virginia residents through Internet orders.

“I support a permanent ban,” said Sen. Susan Collins, R-Maine. “But at a minimum, we should extend the ban. Taxing Internet access will hurt a state like Maine.”

She said she would vote for a permanent ban if she has the opportunity to vote for it. She expects Democratic Senate leaders will seek to pass a bill identical to the House-passed measure, so the bill has a chance of becoming law by November.

Rep. Michael Michaud, D-Maine, said he supported the four-year extension of the tax ban. He said it was important to send a message quickly to state legislatures that they should not look to Internet access as a source of new tax revenue.

“I am a co-sponsor of the bill because I want to send a clear message on this,” he said. “We should not allow taxation on Internet access.”

But whether states would rush to pass new taxes is in question. For example, key members of the Legislature’s Taxation Committee are cool to taxing Internet access. Rep. John Piotti, D-Unity, a co-chairman of the panel, said he doubts it would have much support, but he won’t rule it out as a revenue source.

“As we look at tax reform, I have said we should not rule anything out,” he said, “so I can’t rule this out.”

Sen. Richard Nass, R-Acton, the lead GOP member of the committee, said that although he supports efforts to reform taxes by raising some taxes to lower others, he does not believe taxing Internet access should be part of that mix.

“I cannot imagine in an election year, or any year up here, that we would want to put a tax on Internet access,” he said.