PERMANENT INTERNET TAX BAN SOUGHT OPPONENTS CITE STATE LOSSES.

Byline: Evan Pondel Staff Writer

A federal bill to permanently ban taxing Internet access is drawing concern from local providers that have long been able to provide Web access without taxing their customers.

The Wyden-Allen bill stalled in the Senate on Friday after opponents stressed concern that state and local governments could lose tens of millions in taxes from phones, music and movies that are migrating to the Internet. Senators have been mulling a five-year extension of a temporary ban on Internet access taxes. In California, Web access is not taxed, although experts say if legislation fails to extend the ban on Internet tax, providers would certainly feel the effects.

``It's frightening if you are in the business. The more states that tax Internet access, the more it could make billing for ISPs very difficult,'' said Alex Goldman, associate editor of ISP-Planet. ``You would have to adjust your billing practice in each state.''

United Online, a Westlake Village-based Internet service provider, declined to comment about the bill. However, the company did say in a recent Securities and Exchange Commission filing that ``government regulation or taxation of the provision of Internet access services could decrease our revenues and increase our costs.''

Because ISPs are considered information service providers, as opposed to telecommunications providers, they are not regulated by the Federal Communications Commission, or any other governing body.

United Online, and other ISPs, are also exempt from the access charges that are assessed by local telephone companies. But if the regulatory status of ISPs changes, or charges are imposed on ISPs and consumers to access the Internet, United Online's business could be adversely affected, according to the company's SEC filing.

``We don't like the Internet access tax because people are already being taxed for their phone line and DSL line. In essence we'll have double taxation,'' said Mike Jackman, executive director of the California ISP Association in San Francisco. ``Right now 20 (percent) to 30 percent of the people out there don't have Internet access and this is just going to be another cost layer.''

The bill also would eliminate a grandfather clause that has allowed 10 states to continue collecting access taxes that were in place before a 1998 moratorium went into effect. Drew Kaplan, a vice president at ISWest in Agoura Hills, said a federal tax on broadband already exists. Taxing for Internet access ``is ridiculous,'' he said.

State and local governments collect more than $20 billion every year on telecommunications and believe a permanent ban on Internet access tax would wipe out a large part of that revenue. A core group of senators pressing for a permanent end to taxes on Internet access said those fears are unfounded.

An analysis by the Congressional Budget Office said the bill could hit state and local governments in three ways. About 10 states that imposed a tax on Internet access charges before the original ban, and that were permitted to keep collecting those taxes, would lose $80 million to $120 million each year. The states that currently tax high-speed DSL services would have to stop, at a cost of $40 billion each year. Some lawmakers say those taxes violate the spirit of the original Internet access tax moratorium.

But opponents have raised many objections to these ideas. ``I agree that the Internet is valuable. I supported the first moratorium, but it (the Internet) is a grown-up business,'' Sen. Lamar Alexander, R-Tennessee, said on the Senate floor Friday. ``Telephones are valuable; televisions are valuable; airplanes are valuable; the automobile was a great invention. But we don't tell state and local governments what to do about their tax policy for those businesses. The Internet is not a baby in a crib anymore.''

Kevin Terpstra, a spokesman for California on information technology issues, said banning tax on Internet access isn't something that can be decided with great haste. ``The Internet has become an increasingly large part of the economy, and a concern about the ban is that it will limit the ability of government to raise revenue from a significant part of the economy,'' he said. ``A cautious approach to the bill is justified.''

The Associated Press contributed to this report.

Evan Pondel, [phone]

evan.pondel(at)dailynews.com