On Dec. 3, President Bush signed the Internet Tax Nondiscrimination Act (S. 150), extending a moratorium on all taxation of Internet access and certain aspects of related electronic commerce through 2007. The bill is a result of a multi-year struggle over policy related to taxing Internet access and the development of broadband services across the United States.

Supporters of the ban argue it will ensure the United States stays on the cutting edge of Internet technologies, encourage innovation and expand the reach of broadband networks into poor and rural areas. Opponents say the ban prohibits states already struggling with huge deficits and budget crises from tapping a vital revenue source.

The moratorium was first established in 1998 in the Internet Tax Freedom Act, which banned for three years all taxation (federal, state, or local) related to the Internet, which it dubbed a “tax free zone.” This included taxes on monthly service fees paid to Internet service providers, as well as “multiple and discriminatory” taxes paid when conducting business on the Internet.

The new act will extend those bans while continuing to exempt states that were investigating ways to levy fees on those services prior to Oct. 1, 1998 and those that have taxes and fees currently in place.

While this law has ended the debate temporarily, with both sides claiming a partial victory, the future of a tax-free Internet is still very much in doubt. If not for a compromised offered by Sen. John McCain (R-AZ), this bill might have died in conference. Sen. George Allen (R-VA) and House Judiciary Committee Chairman James Sensenbrenner (R-WI) already have announced plans to attempt to make the ban permanent, but that may be hard to pass considering the continuing decline in stability and revenues in state budgets.