As the expiration date on the 1998 Internet tax ban draws near, pressure is on the Senate to compromise over just how long it will be extended. If the moratorium is not extended, prices for Internet service nationwide could jump—as high as 17 percent, some ISPs claim—once November 1 rolls around.

"In a little over a month, Americans will be forced to pay more to access the Internet, receive e-mails on their BlackBerries and use the Internet on their cell phones if the Democratic leadership refuses to allow the Senate to debate and pass this legislation," Senator John McCain (R-AZ) proclaimed during hearings yesterday. McCain is co-sponsor of a version of the bill that would make the moratorium permanent. There is another version, the Internet Tax Freedom Extension Act of 2007, sponsored by Senators Tom Carper (D-DE) and Lamar Alexander (R-TN), that would extend the ban until October of 2011.

The ban was originally instituted in 1998 and prohibited local and state governments from collecting tax on various types of Internet connection services (ISPs, etc.). This was done out of concern that a tax on Internet connections, particularly broadband, would significantly slow its adoption rate in the US and keep certain citizens disconnected for good. The moratorium was extended in 2004 for three more years; that act represented a compromise between those who wanted to extend it permanently and those who wanted a shorter extension. At that time, however, taxes on VoIP services were approved due to growing concern over losing tax revenue from Internet-based phone services.

Naturally, ISPs favor a more permanent ban, as lower fees paid to the government would mean broader adoption and hence greater revenues. In May, Verizon VP of State Tax Policy Annabelle Canning testified in favor of a permanent ban: "At a time when state and local economic development experts are touting broadband as critical to economic competitiveness, new taxes on Internet access could have a chilling effect on broadband investment," said Canning. The National Governors Association, on the other hand, favors a shorter extension along with a clause that would grandfather in states that had already been allowed to collect Internet taxes in 1998—without such a clause, the Association argues that those states will lose up to $120 million per year in tax revenues under McCain's proposal.

At this point, the deadline is only several weeks away and things look to be moving in the same direction as they were in 2004. No one could agree on whether to extend the moratorium permanently or temporarily, so they did so temporarily. We get the feeling that such a "compromise" will happen this time around as well, and Congress will have to deal with the argument all over again in four years.