US Report: Senate passes Net tax ban

The Senate on Thursday passed by a margin of 96-2 a landmark bill to ban new taxes on the Internet for at least the next three years.

The Internet Tax Freedom Act cleared the upper chamber after nearly a week of debate in which members tacked on numerous amendments dealing with online pornography, electronic verification measures and children's privacy, adding considerable controversy to an otherwise uncontroversial bill.

President Clinton is expected to approve the bill. But before it can be sent to him, the bill must be reconciled with the House version, which contains none of the amendments added by the Senate. Legislators are expected to haggle over the issues throughout the weekend.

As approved Thursday afternoon, the bill would place a three-year moratorium on both taxes on Internet access as well as levies that apply to the Internet but not to business in other media. At the same time, it would leave in place taxes on Internet transactions that also apply offline. Thus, sales taxes, excise taxes, employment taxes and the like would remain untouched by the bill as long as they were applied across the board. Existing taxes on the Internet would also be allowed under a so-called grandfather clause in the measure.

The bill would also set up a 19-member commission to study the effect of the moratorium on conventional retailers as well as its effect on state and local tax-gathering abilities. The Tax Freedom Act garnered support from a broad coalition of industry groups and anti-tax activists and was sponsored by Senator Ron Wyden of Oregon in the Senate.

A similar measure sponsored by California Republican Chris Cox has already cleared the House of Representatives and has the support of the White House. "The Senate made it clear that we support the millions of people who use the Internet, and recognise that this is the business infrastructure of the 21st century," Wyden said. "This is a major victory. Internet consumers should be free from discriminatory taxes."

Though the bill sailed through, legislators struggled to reconcile their differing opinions on some matters. Senator Dan Coats of Indiana for instance, had hoped to add language to forbid commercial Web sites from posting sexually explicit images in areas that can be reached without first surrendering a credit-card number or other form of adult identification. The amendment was patterned on last year's Communications Decency Act, which would have banned public display of materials deemed "indecent," but not obscene.

Though the CDA was struck down as an unconstitutional abridgement of free speech, the Coats bill is thought to have a somewhat better chance of passing muster, since it relies on a "harmful to minors" standard that controls materials that -- for minors, anyway -- "lack serious literary, artistic, political or scientific value."

Coats ultimately had to settle for half of what he wanted. Instead, the Senate on Wednesday passed language that would deny tax relief to companies that openly display pornography on their Web sites.

The bill approved Thursday also included the Government Paperwork Elimination Act, a measure backed by Senator Spencer Abraham - Michigan - that would require the government to make all its forms available for execution online.

It would also give digital signatures the same legal status as hand-written ones. As of today, agencies are free to accept digital signatures, but their enforceability in many cases is unclear.

In addition, the Senate passed an amendment by Senator Christopher Dodd, - Connecticut that would require online and Internet service providers to make anti-pornography screening software available to their customers or lose tax shelters under the bill.

Finally, the Senate approved the Children's Online Privacy Protection Act, a bill that forbids collection of personal information from children age 12 and under without their parents' consent.