Internet Tax Ban Stops Dead in Senate:
"A push to permanently ban taxes on Internet access came to an abrupt halt in the Senate on Friday amid concern that state and local governments could lose millions in taxes from phones, music and movies that are migrating to the Internet."

State and local governments collect more than $20 billion every year on telecommunications and fear the permanent ban will wipe out a large part of that revenue. A core group of senators pressing for a permanent end to taxes on Internet access said those fears are unfounded.

"All the bill says is you cannot discriminate against electronic commerce, and not one state has come forward and given an example of how they have been hurt by their inability to discriminate against electronic commerce," said Sen. Ron Wyden, D-Ore.

An analysis by the Congressional Budget Office said the bill could hit state and local governments in three ways. About 10 states that imposed a tax on Internet access charges before the original ban, and who were permitted to keep collecting those taxes, would lose $80 million to $120 million each year.

http://www.eweek.com/article2/0,4149,1376712,00.asp