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WYDEN, ALLEN BLAST GAO REPORT
ON INTERNET TAXES

January 23, 2006

Washington, DC – U.S. Senators Ron Wyden (D-OR) and George Allen (R-VA) today criticized the latest General Accountability Office report on internet taxation, noting that by failing to consult with the authors of the law, the report’s conclusions about the impact of suspending taxation of wholesale internet services were flawed. The report, mandated under the 2004 Internet Tax Nondiscrimination Act, aimed to examine the effect of the internet tax moratorium on state and local revenues.

“As the original author of the legislation, I am disappointed that GAO has issued a report that will be used by some to confuse, rather than clarify the debate,” said Wyden. “If the report’s authors chose to consult with the authors of the legislation, they would have understood the true impact of the moratorium on states –minimal.”

Senator Allen also condemned the conclusion of the GAO report. “The plain language of the statute, as well as the relevant legislative history, reflect a clear legislative intent to ban Internet access taxes at both the retail and wholesale level. The legislative language has previously been interpreted this way by the Congressional Budget Office, the National Governors Association, the Congressional Research Service as well as a number of States directly affected. As one of the lead sponsors of the Internet Tax Nondiscrimination Act, I am certain that it is not correct for the GAO to assert that this law allows for this type of taxation. Fortunately, the language of the statute and the relevant legislative history carry much more legal weight than the GAO’s flawed interpretation of the law.”

A plain reading of the statute itself indicates that the Internet Tax Nondiscrimination Act prevents a state from taxing the wholesale purchase of telecommunications services used to provide Internet access. The statute reads:

“The term ‘Internet access’ does not include telecommunications services, except to the extent that such services are purchased, used or sold by a provider of Internet access to provide Internet access.”

The committee reports on the bill as well as the recorded statements by its sponsors support this clear statement that “wholesale” taxation is not allowed.

Today’s report, the third in a series of reports on this topic, was mandated under the Internet Tax Nondiscrimination Act of 2004. The legislation passed the Senate by a vote of 93-3 and extended the internet tax moratorium until 2007.

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