Internet tax loophole could cost state $30 million in lost revenue

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(Host) State officials are concerned about a new report released by the National Governors’ Association that indicates that Vermont could lose as much as $30 million a year if Congress enacts a new ban on Internet taxes.

VPR’s Bob Kinzel reports.

(Kinzel) Back in 1998 in order to stimulate the growth of the Internet, Congress passed legislation that placed a three year ban on all state or federal efforts to tax Internet services. The moratorium, which was extended in 2001, expired last fall. Congress is currently considering a plan to extend the moratorium for another four years.

The National Governors’ Association is concerned that the legislation under review has an enormous loophole that could pre-empt a state’s ability to tax non-Internet telecommunications services, such as regular phone service.

Administration Secretary Michael Smith says the problem with the bill is that it allows companies that provide both telephone and Internet services to bundle these services together in a new package that would be offered as a new Internet-based plan. The company could then claim that the entire package should be exempt from state taxes. Smith says this development could pose some serious problems for the state:

(Smith) “We’re concerned about that and the loss of revenue that that may happen now. We have advocated just changing the language to close that loophole. Keep the tax exemption on true Internet providers but make sure that telephone carriers and those sort of companies can’t change their designation and therefore use this loophole to avoid paying taxes.”

(Kinzel) Smith says the Douglas administration is working with Vermont’s congressional delegation to remove the loophole from the Internet tax moratorium bill.

For Vermont Public Radio I’m Bob Kinzel in Montpelier.

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