Internet S.150 ltrs to legislatMEMORANDUM
O~oberl, 2003
TO:
FROM:
SUBJECT:
The Honorable Mayor and City Council Members
Michael C. Van Milligen, City Manager
S. 150, "The Internet Nondiscrimination Act"
Cable Franchise Administrator Merrill Crawford recommends City Council approval of
letters to Senator Chades Grassley and Senator Tom Harkin regarding concerns with
S. 150, "The I nternet Nondiscrimination Act."
I concur with the recommendation and respectfully request Mayor and City Council
approval.
Michael C. Van Milligen
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
Merrill Crawford, Cable Franchise Administrator
CITY OF DUBUQUE, IOWA
MEMORANDUM
September 30, 2003
MEMO TO: Michael C. Van Milligen, City Manager
FROM: Merrill Crawford, Cable Franchise Administrato~.-----~
SUBJECT: S. 150, 'q'he Internet Nondiscrimination Act"
INTRODUCTION: The purpose of this memorandum is to recommend that the
City Council authorize letters to Senator Grassley and Senator Harkin regarding
concerns with S. 150, "The Intemet Nondiscrimination Act"
BACKGROUND: On September 18, the U.S. House of Representatives passed
H.R. 49, "The Intemet NonDiscrimination Act". Its counterpart, S.150 has been
referred to the Senate Finance Committee, chaired by Senator Charles Grassley.
The present federal prohibition of state and local taxes on Internet access will
expire November 1. While the Congress intends to make this moratorium
permanent via H.R. 49 and S.150, wording recently added by the Senate
Commerce Committee would expand the scope of the prohibition to include state
and local telecommunications taxes. Further, the language is broad enough that
we can expect industry players to claim that it also prohibits cable and telecom
franchise fees, rights-of-way fees, or other forms of compensation traditionally
paid as rent to municipalities for the permanent occupancy and use of public
property to generate private commercial profit.
The attached information indicates the immediate and long term financial
damage to municipalities that could result if this legislation is enacted without
clarifying the limits of the "lnternet access" target to which the moratorium is to be
applied.
RECOMMENDED ACTION: The Recommended Action is that the City Council
approve and authorize the Mayor to sign letters to Senator Charles Grassley and
Senator Tom Harkin emphasizing our concern with the defects of this lanquage
in S.150.
cc: Pauline Joyce, Administrative Services Manager
Barry Lindahl, Corporation Counsel
ACTION ALERT I
Internet Tax Non-Discrimination Act Bad News for Local
Governments - Take Action Now to Alert Your Senator
The House of Representatives passed their version of the Internet Tax Non-Discrimination Act H.R. 49 despite
warnings of severe negative impact. The Senate is poised to vote on S. 150, and holds the only hope of
protecting local government interests. Contact your
LANGUAGE OF S. 150 WILL DEPRIVE MUNICIPALITIES
OF BILLIONS OF DOLLARS IN TAX AND FEE REVENUE:
· The Internet Tax Moratorium, originally
intended to prevent the taxation of Intemet
transactions, is set to expire on October 31,
2003, absent Congressional action. H.R. 49
and S. 150 are the result of the desire to extend
and expand upon the existing moratoria. These
pieces of legislation have been heavily
influenced by cable and telecom industry
lobbyists who have helped expand the definition
-- now this legislation could exempt all
telecommunications providers from local
government taxes, including franchise fees for
cable and telephone.
· Specifically, H.R. 49 and S. 150 extend the
moratorium on Intemet taxes permanently and
expand the ban on Internet access taxes to
include telecommunications services to the
extent "such services are used to provide
Internet access."
· The language of H.R. 49 and the proposed
language of S. 150 threatens two traditional, yet
separate and distinct, municipal powers -
o the ability to impose telecommunications
taxes or to apply local utility taxes to the
provision of telecommunications services
and,
o the ability of local governments to impose
franchise fees as "rent" for use of public
rights-of-way on companies, such as
telecommunications and cable service
providers that use public property for private
profit.
· The proposal to make the Internet sales tax
moratoria permanent is premature. The stated
need - to help e-commerce help the economy -
can be equally served by simply extending the
moratorium.
· The result of the proposed legislation will be the
loss of billions of dollars in telecommunications
fees and taxes for local governments across the
Senators today! Let them hear from local governments!
country. With respect to H.R. 49, the
Congressional Budget Office stated that the bill
was an unfunded mandate and will cost state
and local governments at least $80 to $120
million, and further that they "cannot estimate
the magnitude of timing of any additional impact
at this time." The Multi-State Tax Commission
has indicated that losses may be as high as $4
to $8 billion.
WHAT TO DO:
Immediately draft a letter to both your Senators and
to the members of the Senate Commerce
Committee. Demand that your elected members
make changes to the proposed language to clarify
the following two items:
· That in adopting S. 150 Congress does not
intend to interfere with or in any way limit the
imposition or collection of any municipal
telecommunications taxes or utility taxes
applicable to telecommunications, nor with any
municipal rights-of-way fees nor gross
percentage fees collected in lieu of rights-of-
way fees.
· That S. 150 does not preempt the imposition or
collection of excise taxes of general applicability
(including telecommunications and utility taxes)
on services that employ telecommunications,
cellular or cable television facilities, even if
those services offer access to the Internet.
WHERE DO I GET MORE INFORMATION?:
· NATOA has collected a sample of letters sent
from a variety of sources. You can access
these letters on the NATOA Web site, on the
Policy/Advocacy page. Be sure to use a
sample that best fits your state's and/or local
government's concerns, and be sure to modify
them for your community's use.
Visit www.natoa.or,q, Policy/Advocacy Page.
~S. 150, Intemet Tax Nondiscrimination Act
Congressional Budget Office
Cost Estimate
Page 1 of 3
Retrieve in: ~~C~
September 9, 2003
S. 150
Internet Tax Nondiscrimination Act
As ordered reported by the Senate Committee on Commeme, Science, and Transportation on July
31, 2003
SUMMARY
S. 150 would permanently extend a moratorium on certain state and local taxation of online services
and electronic commerce, and after October 1, 2006, would eliminate an exception to that prohibition
for certain states. Under current law, the moratorium is set to expire on November 1, 2003. CBO
estimates that enacting S. 150 would have no impact on the federal budget, but beginning in 2007, it
would impose significant annual costs on some state and local governments.
By extending and expanding the moratorium on certain types of state and local taxes, S. 150 would
impose an intergovernmental mandate as defined in the Unfunded Mandates Reform Act (UMRA).
CBO estimates that the mandate would cause state and local governments to lose revenue beginning
in October 2006; those losses would exceed the threshold established in UMRA ($64 million in 2007,
adjusted annually for inflation) by 2007. While there is some uncertainty about the number of states
affected, CBO estimates that the direct costs to states and local governments would probably total
between $80 million and $120 million annually, beginning in 2007. The bill contains no new private-
sector mandates as defined in UMRA.
ESTIMATED COST TO THE FEDERAL GOVERNMENT
CBO estimates that enacting S. 150 would have no impact on the federal budget.
INTERGOVERNMENTAL MANDATES CONTAINED IN THE BILL
The Internet Tax Freedom Act (ITFA) currently prohibits state and local governments from imposing
taxes on tntemet access until November 1, 2003. The ITFA, enacted as Public Law 105-277 on
October 21, 1998, also contains an exception to this moratorium, sometimes referred to as the
"grandfather clause," which allows certain state and local govemments to tax Intemet access if such
tax was generally imposed and actually enforced prior to October 1, 1998.
S. 150 would make the moratorium permanent and, after October 1, 2006, would eliminate the
grandfather clause. The bill also would state that the term "lnternet access" or "lnternet access
services" as defined in ITFA would not include telecommunications services except to the extent that
such services are used to provide Intemet access (known as "aggregating" or "bundling" of services).
These extensions and expansions of the moratorium constitute intergovernmental mandates as
defined in UMRA because they would prohibit states from cellecting taxes that they otherwise could
collect.
ESTIMATED DIRECT COSTS OF MANDATES TO STATE AND
LOCAL GOVERNMENTS
CBO estimates that repealing the grandfather clause would result in revenue losses for as many as
httm//www, cbo.aov/showdoc.cfm?index=4544&sequence=0 09/29/2003
150, Intemet Tax Nondiscrimination Act
10 states and for several local governments totaling between $80 million and $120 million annually,
beginning in 2007. We also estimate that the change in the definition of Intemet access could affect
tax revenues for many states and local governments, but we cannot estimate the magnitude or the
timing of any such additional impacts at this time.
UMRA includes in its definition of the direct.costs of a mandate the amounts that state and local
governments would be prohibited from raising in revenues to comply with the mandate. The direct
costs of eliminating the grandfather clause would be the tax revenues that state and local
governments are currently collecting but would be precluded from collecting under S. 150. States also
could lose revenues that they currently collect on certain services, if those services are redefined as
Intemet access under the bill.
Over the next five years there will likely be changes in the technology and the market for lnternet
access. Such changes are likely to affect, at minimum, the price for access to the Intemet as well as
the demand for and the methods of such access. How these technological and market changes will
ultimately affect state and local tax revenues is unclear, but for the purposes of this estimate, CBC
assumes that over the next five yearn, these effects will largely offset each other, keeping revenues
from taxes on Intemet access within the current range.
The Grandfather Clause
The pdmary budget impact of this bill would be the revenue losses-starting in October 2006-
resulting from eliminating the grandfather clause that currently allows some state and local
governments to collect taxes on Intemet access. VVhile there is some uncertainty about the number of
jurisdictions currently collecting such taxes--and the precise amount of those collections-CBC
believes that as many as 10 states (Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South
Dakota, Tennessee, Texas, Washington, Wisconsin) and several local jurisdictions in Colorado, Ohio,
South Dakota, Texas, Washington, and Wisconsin are currently collecting such taxes and that these
taxes total between $80 million and $120 million annually. This estimate is based on information from
the states involved, from industry sources, and from the Department of Commerce. In ardving at this
estimate, CBC took into account the fact that some companies are challenging the applicability of the
tax to the service they provide and thus may not be collecting or remitting the taxes even though the
states feel they are obligated to do so. Such potential liabilities are not included in the estimate.
It is possible that if the moratorium were allowed to expire as scheduled under current law, some
state and local governments would enact new taxes or decide to apply existing taxes to Internet
access during the next five years. It is also possible that some governments would repeal existing
taxes or preclude their application to these services. Because such changes are difficult to predict, for
the purposes of estimating the direct costs of the mandate, CBC considered only the revenues from
taxes that are currently in place and actually being collected.
Definition of Internet Access
Depending on how the language altering the definition of what telecommunications services are
taxable is interpreted, that language also could result in substantial revenue losses for states and
local governments. It is possible that states could lose revenue if services that are currently taxed are
redefined as Intemet "access" under the definition in S. 150. Revenues could also be lost if Intemet
access providers choose to bundle products and call the product Intemet access. Such changes
would reduce state and local revenues from telecommunications taxes and possibly revenues from
content currently subject to sales and use taxes. However, CBO cannot estimate the magnitude of
these losses.
Page 2 of 3
ESTIMATED IMPACT ON THE PRIVATE SECTOR
This bill would impose no new private-sector mandates as defined in UMRA.
PREVIOUS CBC ESTIMATE
httn://www.cbo.eov/showdoc.cfin?index=4544&sequence=0
09/29/2003
S. 130, Internet Tax Nondiscrimination Act
On July 2'1, 2003, CBO transmitted a cost estimate for H.R 49, the Interact Tax Nondiscrimination
Act, as ordered reported by the House Committee on the Judiciary on July 'i6, 2003. Unlike H.R. 49,
which would eliminate the grandfather clause upon passage, S. '150 would allow the grandfather
clause to remain in effect until October 2006. Thus, while both bills contain an intergovernmental
mandate with costs above the threshold, the enactment of S. '150 would not result in revenue losses
to states until October 2006.
Page 3 of 3
ESTIMATE PREPARED BY:
Impact on State, Local, and Tdbal Governments: Sarah Puro
Federal Costs: Melissa Zimmerman
impact on the Pdvate Sector: Paige PipedBach
ESTIMATE APPROVED BY:
Peter H. Fontaine
Deputy Assistant Director for Budget Analysis
htm://www.cbo.gov/showdoc.cfm?indeX=4544&sequence=0 09/29/2003
Revenue Impact on State and Local Governments of Permanent Extension of the Internet
Tax Freedom Act
Dan Bucks, Elliott Dubin and Ken Beier~
Staff of the Multistate Tax Commission
September 24, 2003
Short-Term Fiscal Impact of H.R. 49 as Approved by the House Judiciary Committee and
Comparison with Impact If the Bill Were Amended to Reflect Congressional Intent
Based on the best available information, H.R. 49~y preempting a variety of activities
that go beyond access by customers to the Interact and by expanding the scope of the preemption
(o income, property and other business taxes--will reduce revenues from current taxes levied by
the 50 states, the District of Columbia and local governments a minimum of $4 billion and up to
$8.75 billion annually by 2006. Whether the losses rise to the higher level depends on the
outcome of anticipated litigation over the provisions of H.R. 49 if enacted.
The estimates above are conservative because they do not include the full impact of
services, information and content that can be exempted from tax by being bundled with Intemet
access or offered as a service over the Intemet.
In contrast, if the language of H.R. 49 were amended to conform to Congress' intent of
preempting only sales taxes on solely Internet access to customers, including broadband, and
extending the preemption to "grandfathered" sales taxes of certain states, the cost to state and
local governments would be limited to approximately $500 million in 2006. This estimate is
based on mending the language to reflect the original intent of the Intemet Tax Freedom Act,
with modifications to reflect the objectives of technological neutrality and national uniformity
expressed in the deliberations of the House Judiciary and Senate Commerce Committees.
However, the current language of H.R. 49 has a much broader scope and impact than what
appears to be Congress' intent.
Long-Term Fiscal Impact of H.R. 49 as Approved by the House Judiciary Committee
H.R. 49 will eventually exempt all or nearly all of the telecommunications industry from
major state and local taxes: sales, excise, income, property and other taxes. The date when the
virtual exemption from state and local taxes occurs depends on the speed at which the industry
completes the conversion of its services to the Intemet--a technological change now dearly
underway. The point of virtually complete exemption from state and local taxes will occur
earlier in some states and localities than others. If the current language of H.R. 49 had been in
effect in 2002 and if the industry had completed the transfer of its services to the Intemet, the
revenue loss to state and local goverrmaents would have been $22 billion.
A fundamental change is occurring in the telecommunications industry that will enable it
to qualify its services as "Internet access" and thus eligible for a state and local tax exemption
t The authors of this report are, respectively, the Executive Director, Director of Policy Research and Senior Policy
Analyst with the Multistate Tax Commission.
under the current terms of H.IL 49. The traditional telephone system is in the process of being
replaced by the Interact operating at increasingly higher speeds. Business Week magazine
reports that Verizon is basing its future business plan on the "conviction that telecom as we know
it is history. In its place will emerge a 'broadband industry' that will use the new, superfast Net
links and high capacity networks to deliver video and voice communications with all the
extras.''2 The Wall Street Journal reports that MCI by year-end will have moved 25% of its
voice traffic to the Intemet backbone and by 2005, plans to have 100% of the voice traffic therefi
In this article, MCI Senior Vice President Vint Cerf (one of the original co-anthers of the TCP/IP
formula) discusses the future of telecommunications in terms of how some day customers will
buy all voice services for one flat rote when "voice will be just one more application traveling..
· across the Net?
Under existing law, telecommunication services were excluded from the definition of
Interact access and thus not within the scope of the preemption of state and local taxes. Under
the current language of H.R. 49, telecommunications would benefit from the tax preemption to
the extent that they provide Intemet access. As noted above, all telecommunications will
eventually qualify as Interact access as they become a service offered over the Intemet. When
that point is reached--and the transition is tmfolding mpidly--telecommunicatious will be
exempt from all major state and local taxes.
Functional Impact on State and Local Governments
The revenues that would be preempted under this proposed legislation can also be
thought of in terms of what public services could be affected. For example, the National Center
for Education Statistics projects that it will cost state and local governments $8,557 for each
pupil enrolled in public elementary and secondary schools in 2005.5 Every $1 billion that would
be preempted by this proposed legislation, and not made up by other revenues, or reductions in
other services could have been used to provide education for nearly 117,000 pupils. Similarly, at
2001 compensation rates, each $1 billion in state and local revenues preempted by this
legislation translates to nearly 20,000 fewer policemen on "the beat" or nearly 20,000 fewer
firefighters, or more than 27,000 hospital workers. Similarly, for each $1 billion preempted, there
could be nearly 25,000 fewer instructional staffin public elementa~ and secondary schools or
more than 17,000 fewer instructional personnel in college classrooms and laboratories (Summary
Table 1).6
2 Steve Rosenbush with Tom Lowry, "Verizon's Gutsy Bet," Business Week Online, August 4, 2003.
3 Holman W. Jenkins, Jr., "Interact Pioneer Meets the Telecom Wars," The Wall Street Journal Online, August 6,
2003.
4 Ibid.
s U.S. Department of Education, National Center for Education Statistics, Projections of Education Statistics to
2011, May 2001, Table 33., http://nces.ed.gov/pubs200 I/proj01/tablesJtable33 .asp
6 U.S. Bureau of the Census, Public Employment in 2001,
ttp://www.cbo.gov/showdoc.c fm?index-~1434&s equenee=0
2
Summary Table 1
Full-time Equivalent Personnel Per $1 Billion of State and Local Revenue: 2001
Function
Police With Arrest Power 19,895
Firefighters 19,922
Hospital Personnel 27,027
Instructional Staff
Elementary and secondary Education 24,762
Higher Education 17,358
Source: U. S. Bureau of the Census, Public Employment, 2001, and Multistate Tax Commission
calculations.
Summary of Fiscal Estimate Data
Short Term Fiscal Estimates
The Summary Table below presents the data for the short-term fiscal estimates and the
assumptions on which they are based.
Row 1 row presents data for the estimate that the current language of H.R. 49 will cost
state and local governments a minimum of $4 billion from current taxes. Row 2 presents data for
the estimate that the current language could cost up to $8.75 billion in revenue, again, from
current taxes. Row 3 presents the estimate for the slightly more than $500 million cost to state
and local governments of a permanent preemption of only sales taxes on solely Intemet access~
the result if the language of H.R. 49 were amended to reflect Congress' intent. The footnotes in
the table detail the types of taxes affected and the types of telecommunications services that
would be exempted in the short-term.
~ummary Table 2
Short-Term Fiscal Impact in 2006 of Extension of Internet Tax Preemption
under Three Assumptions~
(millions of dollars)
Total Trans-
Assumptions Preempted actions Business
Taxes Taxes2 Taxes3
· - · sn $3,977 2,074 1,903
1. H.R. 49: Amblgulttes Interpreted Moderately by Court
2 H.R. 49 Ambiguities Interpreted More Broadly by $8,751 5,091 3,660
Courtss
3. Legislation Amended to Conform to Congressional $529 529
Intent to Preempt Sales Taxes on Only Interact Access6
1. These estimates do not include the full impact of services, information and content that can be bundled
with Intemet access or offered as another service over the tntemet. They also do not include potential
transactions taxes that state and local governments could impose if the current moratorium were allowed
to expire because such estimates would not reflect any losses from cmrent taxes.
2. Includes gross receipts taxes, consumer sales taxes, 911 fees, and other transactions taxes.
3. Includes sales taxes on business inputs, property taxes, capital stock taxes, and business income taxes,
4. Interact access plus Voice over Interact Protocol (VolP) and wireless communications over the Intemet
(WolP) +intemet backbone services.
5. Interact access, Vol]?, WolP, and other telecommunications services interpreted as an "other service
offered over the Intemet"
6. Interact access clearly defined as a service that connects retail users to an initial point of presence on the
Interact by any means, including DSL and wireless access. Preemption limited, as under current Iaw, to
only sales and other transaction taxes, but extended to those states currently allowed to collect preexisting
mmsactional taxes on Interact access.
Lone-Term Fiscal Estimate.
Because the date when the telecommunications industry converts its services to operate
over the Intemet is not known at this time, this paper places in perspective the impact of a
virtually complete exemption for the industry from state and local taxes by estimating the total
mount of taxes paid by the industry in 2002. This amount was projected by adding to total state
and local telecommunications taxes, other than corporate income taxes, in 1999 an estimate of
· such income taxes and then projecting that amount fonvard to 2002. The estimated amount of
total state and local telecommunications taxes in 2002 is $22.3 billion.7
7 Robert Cline, "Teleconwannications Taxes: 50-State Estimates of Excess State and Local Tax Burden," Tax
Analysts, State Tax Notes. June 30, 2002, p. 932; and IRS Statistics of Inanme, Corporate Income Tax Returns,
1999. State corpomte taxes for telecommunications companies were assumed to be 20% of the federal tax liability
of those companies.
4
Office of the Mayor
~nd City Council
City EaU
50 West 13th Street
Dubuque, Iowa 520014864
October 6, 2003
Senator Tom Harkin
United States Senate
731 Hart Office Building
Washington, D.C. 20510
Dear Senator Harkin:
I am writing on behalf of the City of Dubuque to express our serious concerns with
S.150 and H.R. 49, the "lnternet Tax Non-Discrimination Act". While we do not oppose
a reasonable extension of the moratorium on state and local taxes on Internet access
itself, we believe the present language of these bills goes far beyond such an extension.
We believe the present language of S.F. 150 will alter and expand the definition of
"lntemet access" such that even cable and telecommunications services, which are
currently excluded from the scope of the Intemet tax ban, could become subject to the
ban to the extent such technologies are used in any way to access the Intemet. The
unintended result would be to deprive municipalities of billions of dollars in tax and fee
revenues in the years ahead and, in the meantime, to generate needless confusion and
litigation.
State and local governments did not oppose the internet Tax Freedom Act in 1998 or its
extension on 2001. We recognized the need at that time to foster the growth and
development of the Intemet and its availability to citizens in urban, small town and rural
areas. We've seen that growth occur across the country as in Dubuque, with new high-
speed broadband technologies offered by phone companies, cable operators, wireless
and satellite service providers. It makes sense to update the Act's original language
defining "lnternet access", to treat all access technologies equitably, and to cladfy which
products and services are included in the tax ban and which are not.
Our concern is that the language of S.150 and H.B. 149, as proposed, is overly broad
and poses a direct threat to two traditional, yet separate and distinct, municipal powers.
The first is the ability of cities, where state law allows, to impose telecommunications
taxes (or to apply utility taxes to telecommunications service providers). The second is
our ability to collect franchise fees as "rent" from cable operators and other businesses
that occupy and use public property to generate private profit.
From Dubuque's 50 years of cable television experience, we expect that, if this
language is not refined, some industry participants will quickly interpret S. 150 to avoid
Service People Integrity Responsibility Irmovation Teamwork
Senator Tom Harkin
October 6, 2003
Page 2
paying local utility taxes as well as franchise fees or rights-of-way fees applied to
extensive infrastructure they have deployed above and below our streets and alleys.
Wording must be added to S. 150 stating that Congress does not intend to interfere with
or limit the ability of local governments to impose or collect telecommunications taxes
(or to apply utility taxes to telecommunications service providers), nor with any
municipal rights-of-way fees. The bill should further clarify that it does not preempt the
imposition of collection of excise taxes of general applicability on services that use
telecommunications, cellular, or cable television facilities, even if those services offer
access to the Internet.
We respectfully request that the Congress delay further action on S. 150 and H.B. 49
until a precise definition of "lnternet access" is crafted by committee staff with the
assistance of industry and local government representatives.
Without such clarification, the collateral fiscal damage inflicted by S.150 on local
governments will be significant. Federal preemption ofthese traditional rights, whether
intended or not, will result in immediate financial loss to Dubuque and other Iowa cities,
and the size of that loss will literally mushroom in the future as more forms of
'communication shift to broadband, Intemet-based technologies. We are confident this
is not the legacy you intend or desire for Iowa in the decades ahead.
Sincerely,
Terrance M. Duggan
Mayor, City of Dubuque
Office of the Mayor
and City Council
City Flail
50 West 13ffi Sereet
Dubuque, Iowa 520014864
October 6, 2003
Senator Charles Grassley
United States Senate
135 Hart Office Building
Washington, D.C. 20510-1501
Dear Senator Grassley:
I am writing on behalf of the City of Dubuque to express our serious concerns
with S.150 and H.R. 49, the "lnternet Tax Non-Discrimination Act". While we do
not oppose a reasonable extension of the moratorium on state and local taxes on
Intemet access itself, we believe the present language of these bills goes far
beyond such an extension.
We believe the present langdage of S.F. 150 will alter and expand the definition
of "lntemet access" such that even cable and telecommunications services,
which are currently excluded from the scope of the lnternet tax ban, could
become subject to the ban to the extent such technologies are used in any way
to access the Internet. The unintended result would be to depdve municipalities
of billions of dollars in tax and fee revenues in the years ahead and, in the
meantime, to generate needless confusion and litigation.
State and local governments did not oppose the Intemet Tax Freedom Act in
1998 or its extension on 2001. We recognized the need at that time to foster the
growth and development of the lntemet and its availability to citizens in urban,
small town and rural areas. We've seen that growth occur across the country as
in Dubuque, with new high-speed broadband technologies offered by phone
companies, cable operators, wireless and satellite service providers. It makes
sense tof update the Act's original language defining "lnternet access", to treat all
access technologies equitably, and to cladfy which products and services are
includediin the tax ban and which are not.
Our concern is that the language of S.150 and H.B. 149, as proposed, is overly
broad and poses a direct threat to two traditional, yet separate and distinct,
municipal powers. The first is the ability of cities, which state law allows, to
impose telecommunications taxes (or to apply utility taxes to telecommunications
service providers). The second is our ability to collect franchise fees as "rent"
from cable operators and other businesses that occupy and use public property
to generate private profit.
Service People Integrity Responsibility Innovation Teamwork
From Dubuque's 50 years of cable television experience, we expect that, if this
language is not refined, some industry participants will quickly interpret S. 150 to
avoid paying local utility taxes as well as franchise fees or rights-of-way fees
applied to extensive infrastructure they have deployed above and below our
streets and alleys.
Wording must be added to S. 150 stating that Congress does not intend to
interfere with or limit the ability of local governments to impose or collect
telecommunications taxes (or to apply utility taxes to telecommunications service
providers), nor with any municipal rights-of-way fees. The bill should further
clarify that it does not preempt the imposition of collection of excise taxes of
general applicability on services that use telecommunications, cellular, or cable
television facilities, even if those services offer access to the Intemet.
We respectfully request that the Congress delay further action on S. 150 and
H.B. 49 until a precise definition of "lnternet access" is crafted by committee staff
with the assistance of industry and local government representatives.
Without such clarification, the collateral fiscal damage inflicted by S.150 on local
governments will be significant. Federal preemption ofthese traditional rights,
whether intended or not, will result in immediate financial loss to Dubuque and
other Iowa cities, and the size of that loss will literally mushroom in the future as
more forms of communication shift to broadband, Intemet-based technologies.
We are confident this is not the legacy you .intend or desire for Iowa in the
decades ahead:
Sincerely,
Terrance M. Duggan
Mayor, City of Dubuque