City E Utility Tax For Internet Services Companies Providing Computer Access Say They Already Pay Tax On Phones

FOR THE RECORD: January 19, 1996. Correction: Due to an editing error, Spokane Councilman Chris Anderson’s e-mail opposing an extended utility tax was wrongly described as hate mail.

Looking to capitalize on the expanding telecommunications market, the city of Spokane may soon expand its tax base.

The plan to extend the city’s 6 percent utility tax to businesses providing services such as Internet access is causing a flurry of criticism in the likeliest of spots: on the ‘Net.

Outraged Councilman Chris Anderson denounced the proposal during Tuesday’s council meeting and in electronic hate mail.

Calling it an “absolute travesty,” Anderson said the tax “would ripple through our economy to affect everyone and anyone who uses any such service ….”

“It’s ridiculous,” agreed Eric Smith, a computer consultant and self-proclaimed “Internet junkie.”

One Internet provider already had a Web site dedicated to blasting the proposal by Wednesday afternoon.

The new plan calls for taxing about 30 businesses providing services such as paging, Internet access, teleconferencing and voice mail.

According to early estimates, the move would raise about $10,000, adding to the $4.3 million in utility taxes collected each year.

City Manager Roger Crum said extending the tax makes sense.

Telephone companies, including those providing cellular phone service, already pay the tax.

“Considering the growth of the (telecommunications) industry, it’s only fair” to tax everyone offering those services, Crum said.

Finance Director Pete Fortin said the plan doesn’t require council approval, because the city utility ordinance already allows taxing telecommunications businesses.

At Anderson’s urging, however, the plan will be brought before the council for discussion in about two weeks.

The city began taxing cellular phone services in February 1995.

“The next step is to get everyone in compliance,” Fortin said.

Dave Schmidt, owner of Internet OnRamp, calls the plan “double taxation.”

Schmidt’s company provides Internet access to at least 800 subscribers who dial into his service on more than 80 phone lines.

The city already levies the tax against the phone company, which passes the tax on to customers as a line item on their bill. Because of that, Schmidt said, he’s already paying the tax.

If he has to pay it again, he - like the phone company - will have to pass that 6 percent tax on to his customers.

“That puts me at a serious disadvantage,” said Schmidt, who thinks customers may switch to Internet providers located outside the city.

“When I look to upgrade my office, I’m certainly going to look outside city limits,” he said.

Bob Beaumier, an assistant city attorney, said that some telecommunications businesses may be able to show they’re falling victim to double taxation.

Taxing a tax is illegal, so some companies may qualify for exemptions, Beaumier said.

Spokane isn’t the only city doing this, he said. The city of Tacoma began taxing Internet providers in March.

, DataTimes