While states grapple with the question of whether to tax the Internet, they may well look to Massachusetts, which has had an access tax on the books since 1991 and may soon overturn it.
"This law was enacted before anyone in Massachusetts or at the Department of Revenue had an understanding of what the Internet was," said Joseph Galemme, chief financial officer of The Internet Access Company (TIAC), a service provider that is a member of MassISP, a coalition of ISPs opposing the tax.
Under Massachusetts law, Internet service providers are subject to a 5 percent tax per month on access charges. Although some ISPs have been paying the tax, others have refused.
After meeting with MassISP members, state Representative Dan Bosley introduced a bill earlier this year that would exempt ISPs from the telecom tax. And, as the Boston Globe recently reported, Governor William Weld plans to abolish the telecom tax altogether.
Collecting the tax has not been easy. When TIAC opened in 1994, Galemme said, the company determined that it was already paying the tax in the form of access charges to telephone companies. The taxman did not come calling until last October, when the Revenue Department sent a letter saying that TIAC must pay the tax. The company did not pay, and in December it joined with other ISPs opposing the tax to form MassISP. TIAC hadn't heard from the Revenue Department since.
"The industry has changed so much over the past few years that right now we are just asking folks to come into compliance," said Jeffrey Busha, spokesman for the Revenue Department, who said that ISPs not in compliance may have to pay back-taxes to 1991. "But, if the law were to change, we would obviously work under that law."
The Interactive Services Association, a trade group that monitors Net taxation issues, said legislators in states such as Maryland, California, and Iowa have introduced bills recently to enact similar taxes on Net access. The Clinton administration has encouraged states to hold off on taxing the Net.
