October 4, 2007
Committee on Judiciary
U.S. House of Representatives
We are writing to express our support for the principles underlying H.R. 3678, the “Internet Tax Freedom Act Amendments of 2007.” This bipartisan legislation supported by Representatives Conyers and Cannon is a reasonable and practical compromise position at this time.
We support the Conyers-Cannon legislation because it would temporarily extend the Internet Tax Freedom Act (ITFA) for four more years and modernize the overly broad definition of tax-exempt “Internet access” to address the concerns of states and localities. It would also retain the original 1998 grandfather provision, which preserves existing state and local revenues and maintains some general business taxes not intended to be within the moratorium. We also support the bill’s effort to close loopholes in the original 1998 definition by preventing an Internet Service Provider (ISP) from bundling tax-free Internet access with other additional taxable services and then selling this mixed bundle of tax-free and taxable services as tax free.
A temporary extension is needed, rather than a permanent ban, because Internet technology is rapidly improving and it is unwise to lock in a highly discriminatory policy that favors one technology and one industry over others. The last time Congress considered this issue, the main argument for extending the tax moratorium on Internet access was to protect the Internet’s start-up phase, reduce cost obstacles, and help develop and mass-market the technology. Given that today’s Internet is everywhere, there are hundreds of millions of users, and Internet access is technologically advanced, the rationale for a permanent ban is weak. Furthermore, evidence from the nine grandfathered states that charge Internet access taxes and the 14 developed nations that outrank the U.S. in adopting broadband demonstrate that tax policies have little to no impact on either the Internet’s expansion or user access. It is also important to note that when the temporary moratorium last expired, not one state or local government enacted a new tax on internet access. While we think the best possible course would be to let the temporary moratorium expire, H.R. 3678 is a reasonable way to proceed now and is far better than a permanent moratorium.
We strongly oppose any amendments to make ITFA permanent or lengthen a temporary moratorium beyond four years. We strongly oppose amendments to expand the moratorium to cover more than basic Internet access, which would create problematic new loopholes. We also oppose amendments to weaken or eliminate the grandfather clause because this would undermine the sovereign taxing power of states and localities and result in the loss of billions of dollars. We oppose any of these weakening amendments because they would reduce the ability of state and local governments to fund health care, education, public safety and other vital public services. We urge you to oppose these and any other weakening amendments.
We hope you will support efforts to protect state and local governments from the loss of critical revenues, especially when many are suffering declining revenues and struggling to fund vital public services.
American Federation of State, County and Municipal Employees
Communications Workers of America
Service Employees International Union
American Federation of Teachers
Department for Professional Employees, AFL-CIO
National Education Association
Laborers’ International Union of North America
International Association of Fire Fighters
United Food and Commercial Workers Union