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Taxing Debate

5:30 PM -- A controversial new study from the non-partisan Government Accounting Office finds that the Internet Tax Freedom Act, passed in 1998, would allow state and local governments to tax certain services provided over the Internet, including VOIP. The report has sparked criticism from both sides of the aisle, with lawmakers saying that under the GAO view a broad array of new Web-based services could be taxed.

The study's authors state that while the Tax Freedom Act explicitly bans levies on "a service that enables users to access content, information, electronic mail or other services offered over the Internet," it doesn't apply to so-called "acquired services" -- i.e., the infrastructure used to carry Internet traffic. So, an ISP or VOIP service provider leasing network capacity from a telecommunications company could be taxed on the deal.

That'd be like taxing a train for running over a railway -- but not the goods the train carries. The GAO -- usually a voice of reason in the din that is D.C. -- is, apparently, aware that this is an arcane and unpopular piece of legal hairsplitting: "We acknowledge that others have different views about the scope of the moratorium," the report authors write, adding that the report contains no recommendations to tax or not to tax.

But that's not it. The report leaves an important question open: What happens as more and more Internet traffic travels wirelessly where there's no infrastructure to tax?

What'll they think of next -- taxing the air?

— Richard Martin, Senior Editor, Unstrung

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