In September 1996, San Bernardino city officials sent a letter to Internet Services Providers (ISPs) across the nation instructing them to add the city's utility user tax as a surcharge on the bills of their customers within the city limits.

The letter from this Southern California "Inland Empire" city was a shot across the bow. Some ISPs have customers in nearly every city and town across California. Imagine the tax nightmare if every local jurisdiction forced ISPs to collect a tax on Internet users at a different rate depending on where the subscriber lived!

I introduced Assembly Bill 1614, the California Internet Tax Freedom Act, to prevent this tax madness. I had three primary goals: (1) no new taxes on Internet access; (2) no discriminatory taxation of the Internet; and (3) making California a leader in Internet taxation issues.

It took over a year of negotiations to get those simple principles to Governor Pete Wilson's desk. The governor continued his leadership on Internet Tax Freedom by promising to sign the bill. The bill places a three-year moratorium on new or discriminatory taxes on the Internet. It also extends an existing provision in the sales and use tax law which clarifies that simply having an out-of-state company's web site hosted by a California ISP does not create nexus for the out-of-state company.

Let's Not Scare Away a Home-Grown Industry
California is the home of the Internet industry. But unlike traditional industries like agriculture or oil, an Internet company could move its whole operation over the weekend, with little disruption to customers. ISPs could just as easily set up shop in Utah, Texas, or the Cayman Islands.

These growing companies will choose to locate elsewhere unless we ensure reasonable tax policy. AB 1614 demonstrates that California recognizes the importance of this new, emerging industry, and will enact tax policies that help the industry thrive.

Avoid Multiple and Confusing Taxation
There are more than 1,000 taxing jurisdictions in California alone. Some local leaders have advocated that a specific tax or fee be levied on Internet service, similar to a local utility tax found on many Californians' monthly phone and utility bills.

Geography means little on the sprawling Internet. Subscribers can choose from thousands of service providers, and ISPs serve subscribers from all over the world. Separate Internet taxes for each jurisdiction would harm the expansion of the Internet and make it difficult to do business in California. Placing a moratorium on new and discriminatory taxes will allow these companies to mature and prosper before the tax bureaucrats get too creative.

Local Government Bonanza
The Internet industry is a bonanza for local governments. Well-paid employees have money to spend in local businesses. Internet companies have significant investments in computer hardware, most of which they buy locally, with sales tax revenues flowing to government coffers. It's a simple equation: growth in Internet access and electronic commerce means jobs for California.

I was gratified the Legislature approved the California Internet Tax Freedom Act by an overwhelming margin. For business, it's a vote of support for a home-grown industry that will keep our economy thriving well into the 21st Century. For Internet users, it will keep the cost of Internet service low, and ultimately help make Internet access available to those who are not yet on-line, including many seniors, schools, and libraries.

Ted Lempert, a Democrat from Palo Alto, represents the 21st Assembly District in the California Assembly. Mr. Lempert also authored AB 1063 to expand the manufacturers investment credit to computer software.