Senate renews plan to ban internet taxes forever

Do you ever look at your phone bill and wonder, “what the heck are all those fees?” While it’s a natural impulse to blame the mendacity of the phone company, most of those items are there because various governments put them there.

The good news is that federal law bans tax on internet service — meaning that most of us don’t see something like this on our broadband bill:

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Well, for now, at least. Due to a quirk in Congress, the current relief from internet taxes is based on a temporary measure that keeps expiring and getting renewed on a short-term basis.

But as The Hill reported Tuesday, a bipartisan group in the Senate, led by John Thune (R-SD) and Ron Wyden (D-Or), wants to change that by passing a law called the Internet Tax Freedom Forever Act.

Those who follow these things may say we’ve seen this movie before, and that Congress has tried and failed to make the internet tax permanent in the past – most recently last December.

This time is likely to be different, however, as the bill appears to be finally decoupled from a more contentious proposal known as the Marketplace Fairness Act, which would have required online retailers to collect state sales tax.

While both measures are broadly related to taxes and the internet, they are are in fact separate issues: one is about taxing ISP connections, and the other is about how state sales tax should apply to online retailers. But in the past, supporters of the latter have tried to tie the two issues together when it came to voting in Congress.

Now that the Internet Tax Freedom Forever Act appears to be up for debate on its own, however, its chances of success seem high given that it enjoys broad bipartisan support.

The measure could, however, get tangled up in the hot button issue of the FCC’s proposal net neutrality, which Republicans want to portray as tax grab. As I’ve explained in the past, such claims — including a “study” claiming a $17 billion tax hit — appear utterly specious but, well, that won’t stop certain grandstanders from touting them anyways.

Finally, it remains to be seen how a permanent ban on ISP taxes would affect seven states (Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin) that imposed internet taxes prior to October 1, 1998, and have been allowed to skirt the temporary ban because of a grandfather clause.

Here we go: 5 things to watch as net neutrality gets real

Who saw this coming? A year ago, the smart money said the cable industry would call the shots as the FCC moved to rewrite rules for the internet. But this week the agency chairman threw sand in the industry’s eyes, and came out instead with a plan to pass the strongest net neutrality rules ever.

The proposed rules, which were announced in broad strokes on Thursday, are a victory for consumers and companies that rely on a neutral internet — but the process is hardly across the goal line just yet. It still abounds with political and legal trapdoors that could reverse or whittle down FCC Chairman Tom Wheeler’s proposed plan.

Here’s what to watch ahead of the FCC’s big vote, scheduled for February 26, and in the months to come.

1) How far will the Republicans go to stop this?

Senator John Thune (R-SD) and other Republicans are claiming FCC Wheeler’s plan is a power grab by the FCC, and are offering legislation as a way to address internet regulation instead. The bill they’re now touting, which critics say amounts to a sham version of net neutrality, won’t pass since President Obama says he would veto it.

But that may not be the end of it. Sources in Washington say Republicans may insert a rider into a must-pass piece of legislation (such as the defense appropriations bill) and kill the FCC rules that way. But would they go that far?

The outcome will be determined by the powerful telecom lobby, but also by the reaction of voters who may balk if they perceive their elected officials rewriting FCC rules at the bequest of unpopular companies like Comcast and AT&T.

2) Interconnectedness/peering: how will the new rules protect the likes of Netflix?

The FCC plan would impose common carrier requirements on ISPs, which would bar them from favoring some websites over others when offering broadband to consumers. But the rules may not resolve disputes at a deeper layer of the internet. These disputes involves ISP’s battling content providers such as Netflix, which has accused the ISPs of “extortion” for demanding money to upgrade ports and other infrastructure.

Wheeler said the rules will address this issue (known in industry parlance as interconnectedness or paid peering) through a “reasonable” standard based on customer complaints, but this could lead to slow resolution processes and ambiguous instructions for ISP’s. Look for industry lawyers to parse this part closely.

A lot of money rides on the exact rules for paid peering since the ISPs have already set up a new revenue stream by charging tolls to content companies, and that is money they will be loathe to lose in the future.

3) Will more big companies come out to support the FCC?

The corporate fight over net neutrality began as a gross mismatch, pitting wealthy and connected telecom giants against relative minnows like Etsy and Netflix. But as momentum shifted in recent months, some surprise allies — including Sprint — came out of the woodwork in favor of Title II (the law Wheeler is using to implement net neutrality).

Now that Wheeler has officially shown his cards, it will be interesting to see if other companies help blunt what is sure to be a fierce counterattack from the telecom industry. Google, for instance, could be a game-changer. The company has so far stayed on the sidelines (and Google Chairman Eric Schmidt reportedly urged White House officials not to support Title II), but recent remarks suggest the company could be nudging towards the Netflix camp.

4) What will happen with “zero rating”?

“Zero rating” is a sleeper issue in the U.S. net neutrality debate. In plain English, zero rating refers to phone and internet companies offering plans where certain services — like music — don’t count against a customer’s monthly data caps.

Unlike throttling website traffic, companies can characterize zero rating as a pro-consumer practice since it involves offering free services. But as recent news in Canada and Europe shows, it also raises serious questions over competition.

Wheeler’s announcement on Wednesday left the FCC considerable wiggle room on zero rating by addressing the issue through a catch-all conduct rule. While this will provide a backstop of sorts, it also amounts to a loophole (as my colleague Stacey Higginbotham explained in her detailed review of the proposal) that companies could take a run at in court, and in the market.

5) Is the public still paying attention?

Many thought the FCC would not go through with net neutrality because the issue is esoteric, and that would make it easy for the cable industry to shape the debate and the outcome. That turned out to be wrong, as citizens engaged in a record-breaking public comment process, and comedian John Oliver turned the topic into a viral video.

All of that helped to spur momentum in favor of net neutrality advocates, and pave the way for this week’s FCC proposal. But if Republicans try to use their power of the purse to undo all this, ordinary people would have to tune in all over again to stop that — and it’s no sure thing they will be as interested in doing so.