November 9, 2007, 12:00 AM

Internet access will be tax- free for another seven years (in most states)

Internet access is free from being taxed for at least another seven years, now that President Bush has signed into law legislation that extends the federal moratorium on Internet access tax until 2014. Nine states with pre-existing laws are exempt.

Internet access is free from being taxed for at least another seven years, now that President Bush has signed into law legislation that extends the federal moratorium on Internet access tax until 2014.

Bush signed on Nov. 1 the Internet Tax Freedom Amendments Act, which extends the moratorium first established in 1998. The new law also includes a clause that includes e-mail and instant messaging services under the moratorium, even if these services are not packaged with an Internet access program.

But it exempts nine states-Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Texas, Washington and Wisconsin-that imposed Internet access taxes since before 1998. Wisconsin, for example, collects about $50 million a year in Internet access tax, according to the state’s Department of Revenue.

Whether the moratorium will ever become permanent remains to be seen, says Daniel Schibley, a tax analyst at CCH Inc., a publisher of tax and legal materials. Although some proponents of the moratorium have pledged to continue working to make it permanent, the current 7-year extension was a compromise to win over those who want to keep the tax option open for the future, Schibley says.

The Internet access tax issue is separate from another effort to impose a nationwide system of taxing products and services sold through web sites. But setting aside the issue of Internet access taxes for several years may help to push forward action on the Streamlined Sales Tax Project, under which more than 20 states are seeking to make mandatory the collection of tax on all sales conducted by web and catalog retailers.

“Legislators may have more time now to look at the Streamlined Sales Tax Project because it will be less complicated for not having to worry about links to Internet access taxes,” Schibley says.

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