Topeka ? Worried the state treasury might be shorted $100 million a year, Kansas officials are among those fighting a bill in Congress that would ban state and local governments from taxing Internet access.

Supporters of the bill, which has been approved by the House and now is being considered by the Senate, say it will keep Internet access affordable.

But officials from Kansas and other states said Wednesday the measure would have a much broader impact than originally advertised.

Nationally, the Multistate Tax Commission has weighed in against the bill, saying it would give the telecommunications industry “an unprecedented churchlike status” by providing a blanket exemption from state and local taxes. The bill could cost states from between $4 billion and $8.75 billion annually, the commission said.

Kansas officials say the damage could be as high as $100 million annually to the state treasury.
“We think it has the potential to have a very big impact on the states,” said Richard Cram, director of policy and research at the Kansas Department of Revenue.

The bill makes permanent a tax moratorium that bans states and local government from taxing fees paid for Internet access, such as the digital subscriber line (DSL), cable, satellite or dial-up services.

Gov. Kathleen Sebelius has said in letters to congressmen that she has no problem with that part of the bill.

But new language in the bill extends that tax ban to include telecommunications services purchased by Internet service providers in order to provide access to the Internet. In short, it would ban the wholesale taxes that the states have always assumed they could levy.

¢ California may fuel Internet tax trend (2-28-03)¢More about the Internet tax ban bill

“This amendment would greatly broaden the effect of the moratorium to include telecommunications services that Kansas currently considers taxable,” Sebelius said of the bill’s wholesale component.

In addition, she said the bill provided an incentive to telecommunications companies to provide traditional voice services, which have long been taxed, over the Internet and then claim the law bars states from taxing it.

“It provides an obvious method for telecommunication companies to provide telecommunications services via the Internet, and that would be protected from taxation under the new language of the bill,” Cram said.

Cram said the state currently collects about $98 million in sales taxes from telecommunications services of all sorts.

The state would probably lose from between $5 million to $10 million under the bill due to the loss of Internet taxes. But the entire $98 million could be lost if the industry had a tax-free haven on the Internet and moves telephone and other telecommunications services to the Internet, he said.

After release of the Multistate Tax Commission study on the bill, Tennessee Revenue Commissioner Loren Chumley said: “Our legal reading of the new expansive language … is that it will effectively rope off the telecommunications industry from local and state taxes.”