Congress is moving quickly to beat a Nov. 1 deadline for renewing a ban on taxes for getting online, but the push has sparked a furor over how broadly Internet services should be taxed and whether cash-strapped state and local governments might lose billions of dollars in revenue per year. For proponents, the issue is simple: Internet use is vital to economic growth, and going online should not be subject to a new tax when consumers already pay an array of local and state taxes and fees for telephone and cable television services.
That view was backed by Congress five years ago when it first approved the ban. As a result, states cannot levy taxes or impose fees on Internet service providers, such as America Online or EarthLink, for providing consumers with Internet accounts. But those were the days when most consumers went online via ordinary phone lines, sometimes paying for additional lines. Although no tax could be levied on the Internet account, a consumer still paid taxes and fees for use of a second phone line.
Now, increasing numbers of consumers are going online via high-speed systems that piggyback on existing lines, rendering extra lines unnecessary. Digital-subscriber-line service, for example, provided over phone lines, is in about 9 million U.S. homes.
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