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New York Takes Tax Burden Off Internet Firms

By Shannon Henry

Staff Writer

New York state has come out with a formal policy exempting Internet access service from state sales taxes.

After a yearlong study on the issues of telecommunications and taxes, the state published a report that concludes Internet service is distinct from telecom, and therefore should not be subject to the tax law. The study was required by the Telecommunications Act of 1996, which was signed into law last February.

Additionally, the report said businesses that advertise on the Internet through a New York-based access provider will not have to pay sales tax to the state.

New York Gov. George Pataki hopes tax exemptions will draw more high-tech companies to the state.

Because some Internet service providers in New York were already voluntarily collecting sales taxes, the state will lose about $4 million a year due to the policy, according to Kevin Quinn, a spokesman for the New York State Department of Taxation and Finance.

Pataki has directed that department's commissioner, Michael Urbach, to implement the report's suggestions.

However, Quinn said, making New York attractive to new media companies is more important. Internet access companies had told the governor's office they were concerned that their potential advertising clients were worried about a high New York sales tax, he said.

In fact, the Internet exemption is only one of several attempts by the state to combat its
image of overtaxation. Pataki's World Wide Web site currently announces "We've changed! New York is now business friendly," and goes on to list state tax-reduction programs and incentives.

In January, Pataki announced a plan to eliminate estate and gift taxes, policies that have been in place in the state since 1933.

The Internet community, of course, applauded New York's anti-tax move. Harris Miller,
president of the Information Technology Association of America, Arlington, Va., said the move confirms the group's stand that current tax policies can't simply be applied to Internet commerce.

In a letter to Pataki, Miller wrote: "New York's decision not to impose new taxes on the provision of Internet access ... makes New York an attractive state for Internet-related businesses and, no doubt, will facilitate the growth of the industry and related jobs in the state."

Pataki said that he has also appointed a group to develop a policy that will further encourage the growth of Internet and other new media companies in the state.