On Oct. 31, President Bush signed the seven-year extension of the state and local Internet access tax moratorium, an issue we've written about here, here, and originally here. In that original blog, Cybertax: A Digital Divide of Historic Proportions, we quoted Mark Murphy, Fiscal Policy Analyst , Department of Research and Collective Bargaining Services of American Federation of State, County and Municipal Employees (AFSCME), as follows: As our economy and society evolves. [B]y definition more and more economic activity will be innovative and advanced. It cannot all be made tax-exempt. One can imagine that if this approach to tax policy had been taken earlier in our history, then manufactured goods, or the automobile and gasoline, or airline service would be 'tax free,' while only agriculture would be left to bear the tax burden. But the debate on the premise of barring state and local taxation of companies providing internet access never materialized in Congress. Instead, an NFL record for longest extension of a tax moratorium may have been set, when a "compromise" seven-year extension was agreed upon by the House and Senate, after the chambers had previous insisted on four and six years, respectively. Nevertheless, there are some silver linings in the conclusion of this round of the moratorium. The new law:

prevents tax-exempt content bundling, redefining Internet access as providing a connection to the Internet (exempt) together with other Internet services such as e-mail and instant messaging (no longer exempt)

amends the definition of "telecommunications" to include unregulated/non-utility telecommunications (such as cable service)

lifts the current exception for taxing Voice over Internet Protocol (VoIP)

does not discard the notion of a moratorium, suggesting that state and localities ought, in the long run, to be able to exercise their traditional rights of taxation over a sector as robust, competitive, innovation, and rapidly-changing as the Internet