[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




 
      THE REPORT OF THE ADVISORY COMMISSION ON ELECTRONIC COMMERCE

=======================================================================

                                HEARING

                               before the

                  SUBCOMMITTEE ON TELECOMMUNICATIONS,
                     TRADE, AND CONSUMER PROTECTION

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 6, 2000

                               __________

                           Serial No. 106-98

                               __________

            Printed for the use of the Committee on Commerce

                    ------------------------------  

                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland

                   James E. Derderian, Chief of Staff

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

   Subcommittee on Telecommunications, Trade, and Consumer Protection

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL G. OXLEY, Ohio,              EDWARD J. MARKEY, Massachusetts
  Vice Chairman                      RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio                BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California          ANNA G. ESHOO, California
NATHAN DEAL, Georgia                 ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma              ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming               BILL LUTHER, Minnesota
JAMES E. ROGAN, California           RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi                          JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York                (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)



                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Gilmore, Hon. James S., III, Governor, Commonwealth of 
      Virginia...................................................     9
Material submitted for the record by:
    The Sky Is Not Falling: Why State And Local Revenues Were Not 
      Significantly Impacted By The Internet In 1998, by Robert 
      J. Cline and Thomas S. Neubig, study entitled..............    50

                                 (iii)

  


      THE REPORT OF THE ADVISORY COMMISSION ON ELECTRONIC COMMERCE

                              ----------                              


                        THURSDAY, APRIL 6, 2000

              House of Representatives,    
                         Committee on Commerce,    
                    Subcommittee on Telecommunications,    
                            Trade, and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, the Hon. W.J. 
``Billy'' Tauzin, (chairman) presiding.
    Members present: Representatives Tauzin, Oxley, Stearns, 
Gilmore, Cox, Cubin, Shimkus, Wilson, Pickering, Fossella, 
Ehrlich, Bliley (ex officio), Markey, Eshoo, Wynn, Luther, 
Sawyer, Green, and McCarthy.
    Also present: Representative Upton.
    Staff present: Justin Lilley, majority counsel; Cliff 
Riccio, legislative clerk; and Andy Levin, minority counsel.
    Mr. Tauzin. The committee will please come to order. Let me 
ask all our guests to take seats, and we want to accommodate 
Governor Gilmore in a timely fashion, so we will begin this 
hearing as we wait for other members to join us, Governor.
    The subcommittee today has a very high honor of welcoming 
the Governor of Virginia to the Committee on Commerce. Governor 
Gilmore serves as the Chairman of the Advisory Commission on 
electronic commerce, and he's here today to summarize for us 
the commission's work, which is recently completed.
    Let us first begin by congratulating Governor on his fine 
work. Congress has obviously assigned a rather daunting task to 
the commission. You and the majority of your colleagues, in our 
opinion, have performed it admirably. You pulled together a 
wealth of information and proposals that will surely guide this 
committee and the Congress as it moves forward with legislation 
to codify the work of the commission.
    I think we can agree that E commerce holds rich potential, 
that we almost think very carefully about whether we want to or 
need to extend the hand of the tax man into the web. I, along 
with the majority leader, Dicker Armey, have toured this Nation 
to hear from the American people on the issue of taxes. We have 
done 40 different cities in America in our Scrap the Code Tour, 
Governor. If there's one thing we've learned from those tours, 
it's that the American people think we're not listening to them 
yet. The politicians are indifferent to the fact that over half 
of what they earn goes to some level of government today.
    We must, therefore, make it clear to consumers that on this 
one important issue on the Internet, we're going to be 
listening very carefully, and we're going to be watching out 
for their interest. After all, we owe it to them. Let me remind 
my colleagues that the tax man can take many forms, including 
the FCC. That's why I and 132 of my colleagues have co-
sponsored legislation introduced by Congressman Upton that 
would bar the FCC from imposing permanent access charges on 
Internet access services.
    I urge my colleagues to use today's hearing to begin 
thinking about what this report means for the future of 
taxation at every level of government. We're a country of 
limited government, based on the principle that government will 
take only that which it truly needs for the people of our 
country. Governor Gilmore will today help us understand what he 
and his colleagues learned about the government's needs when it 
comes to the issue of E commerce. I certainly welcome him and 
congratulate him on his fine work, and look forward to working 
with him to enact the proposals of the commission.
    The Chair will now welcome other members for opening 
statements before I introduce the chairman of the full 
Committee on Commerce, who will have the honor and privilege of 
introducing the Governor of his home State of Virginia in just 
a second. Now the Chair recognizes the ranking minority member, 
Mr. Markey, for an opening statement.
    Mr. Markey. Thank you, Mr. Chairman, very much. I want to 
commend you for calling this hearing today to hear from 
Governor Gilmore on his perspective on the work of the special 
commission we established to explore issues relating to 
Internet taxation.
    I approach the issue of Internet taxation as someone who 
supported the Internet Tax Freedom Act. We made a wise decision 
to say time out and to give a blue ribbon panel with 
representatives of the States, cities, industry, and the 
Federal Government an opportunity to create a consensus on how 
to handle this issue. I think that the Internet Tax Freedom Act 
had a laudable goal, to protect electronic commerce in its 
infancy from excessive, discriminatory, or confusing taxation.
    It is important to keep things in perspective. The 
magnitude of what we're talking about is relatively small. The 
Department of Commerce announced just a month ago that the 
estimate of U.S. retail E commerce sales for the fourth quarter 
of 1999, October through December, was $5.3 billion. That means 
that E commerce sales accounted for less than 1 percent of the 
total retail sales estimates, which was $821.2 billion for that 
quarter, yet there is little question that the growth curve for 
online commerce promises to be exponential in nature.
    There are a number of key questions that I believe need to 
be asked before we consider making the Internet completely tax 
free or making the current moratoria prohibitions last into 
perpetuity. For example, is treating online retailers more 
favorably from a tax standpoint than old time storefront 
retailers necessary for online commerce to succeed and 
flourish? Can the Internet survive an online tax onslaught from 
thousands of taxing jurisdictions? If you believe the answer to 
that question is no, then do you favor making a tax ban 
permanent, or do you favor simplifying the tax collection 
amongst jurisdictions in order to reflect the reach of the new 
technology?
    Recognizing the reality of the current digital divide, will 
we exacerbate that gap with a cybertax policy that favors the 
wealthy, who are more likely to shop online, over the poor, who 
lacking access, will continue to pay taxes for purchases in 
stores. For those who are against Internet taxes, what taxes do 
you favor? Income taxes? Inheritance taxes? Property taxes? 
Some taxes will have to be raised if we're going to take these 
taxes off of the books. I think there's a responsibility to 
have a concomitant discussion of the taxes that are going to be 
raised with the same discussion of which taxes are going to be 
lowered or eliminated. They're not two separate conversations. 
It's all part of the same discussion.
    The Internet tax moratorium has helped to focus everyone's 
attention, and for that reason I believe it has been very 
helpful, not only because it has been educational from a 
technology standpoint for many people, but because it assists 
us in re-examining our tax policies generally. I believe that 
it is wise that the moratorium to be guided by the principle 
that we don't want to single out the Internet for 
discriminatory tax treatment.
    In other words, I believe that the current moratorium has 
been useful to the extent that it has prevented taxing entities 
from singling out and victimizing Internet companies in a 
discriminatory way for tax treatment. Just as many Members of 
Congress, like myself, voted to prevent a rushed tax. I believe 
simultaneously that we ought not to rush to make a tax 
prohibition permanent. We ought to tread very carefully in this 
area before we unwittingly create a cyberspace Cayman Islands, 
like a tax haven without intending such a result.
    Finally, I think that we should note the irony that we are 
hearing from Governor Gilmore immediately preceding a hearing 
on legislation introduced by Congressman Pickering, myself, 
Mrs. Wilson, Mr. Largent, Jim Tauzin, and ranking member Mr. 
Dingell, that streamline the process for collecting and 
assessing tax revenue on mobile telephones. Increasingly, 
consumers take their phones from State to State, city to city. 
Right now, because of the mobile nature of cellular phone use 
and the often unclear obligations and methodologies for 
collecting tax revenue from wireless service and different 
taxing jurisdictions, the cellular industry is burdened 
administratively. Consumers are often confused about billing, 
and tax officers from coast to coast are left trying to explain 
nexus issues.
    The cellular industry, worked in concert with our Nation's 
Governors and tax commissioners to come up with a commendable, 
straightforward plan to assess uniformly the taxes at a 
cellular consumer's place of primary use. This is a laudable 
effort, and one which I am pleased to co-sponsor with 
Congressman Pickering.
    I think it can serve as a model for building consensus on 
issues affecting interstate commerce and State and local tax 
jurisdictions. Again, I want to commend the chairman for 
scheduling this double header today, as the baseball season 
opens. I think we have two great hearings, and I think him for 
his courtesy in allowing me a couple of extra minutes to finish 
my opening statement.
    Mr. Tauzin. The Chair would ask unanimous consent that we 
waive giving any further opening statements in order to 
accommodate the schedule of the Governor. If both sides will 
agree, I can then introduce the chairman of the Commerce 
Committee and introduce the Governor. Let me explain. The 
Governor just informed me this morning--I want to sympathize 
with you a bit, Governor, the legislature just left town in 
Virginia and left him with 1100 bills that he's got to read and 
either sign a veto by Sunday. I think we need to accommodate 
him if we can. Can I have any signal as to whether or not 
unanimous consent of that nature would be acceptable?
    Ms. Eshoo. I don't want to spend more time debating it. How 
many of us are here and how many minutes would it be? Five 
minutes, 6 minutes? These are really important issues.
    Mr. Tauzin. Well, then, the Chair will not put the 
unanimous consent if the gentlelady has a problem. Is there 
anyone on this side that wishes to make an opening statement? 
Then the gentlelady is recognized.
    Ms. Eshoo. Thank you, Mr. Chairman. I'll move as quickly as 
possible. Good morning to you and welcome to Governor Gilmore. 
Today we're participating in two hearings. In each, we're going 
to learn about a group of government entities and business 
interests and their effort to reform tax laws that threaten the 
development of technologies important to our Nation's economic 
success. One group, I believe, has done better than the other.
    In the hearing on wireless communications, we're going to 
hear from four individuals, each representing different 
interests, who appear to have succeeded in reforming a 
complicated and conflicting tax structure now hampering the 
growth of wireless communication. We have a document, a bill, 
we on the committee can refer to.
    In this hearing, I don't believe we are as fortunate. 
First, contrary to committee materials provided to us, as well 
as several press reports, this committee is not receiving the 
report of the advisory committee on electronic commerce today. 
There is not a report. It hasn't been written, but apparently a 
draft exists.
    Second, while I, of course, welcome the chairman of the 
commission, Governor Gilmore, to our committee, I believe we 
are receiving his report of a summary of recommendations. These 
recommendations were passed by a majority of the commission, 
which is less than the Congressionally mandated super majority. 
In reviewing the written testimony submitted by the witness, 
much of the statement offers his personal opinion about the 
work product of the commission. My preference would have been 
to hear the opinions of other commission members.
    The advisory commission faced difficult challenges. The 
issue of taxes and E commerce are complicated and quickly lead 
to fundamental questions about the basic commercial tax 
structure of our Nation, and whether a revolutionary overhaul 
is needed on State and local taxes and how they are collected. 
I agree with several of the so-called recommendations we will 
hear today, but I am disappointed that the committee is hearing 
a summary of a draft report not yet fully written and which is 
being presented by the witness today representing a commission 
so divided that it could not meet the criteria that Congress 
established for its recommendations.
    I compliment the hard work the Governor and the rest of the 
Commission put into the effort. I suspect many of the 
commission members, especially those from the private sector, 
got a real life lesson in public policymaking and how difficult 
it is to find consensus on a fair and workable tax structure. 
As a member of this Commerce Committee, I hope we are able to 
have a more comprehensive hearing in the future, and I hope you 
will conduct that, Mr. Chairman, one with the Commission's 
actual report and one where we can perhaps have several of the 
Commission members before us. It would be instructive to hear 
them recount some of the problems they encountered and discuss 
their views on why they think the Commission could not meet the 
requirements set by Congress.
    The Advisory Commission, I think we all agree, worked very 
hard, and they wrestled with issues this committee will face in 
the future. I think we owe it to ourselves, as well as to our 
constituents and to our country, to get a fuller and better 
picture of what occurred.
    Thank you, Mr. Chairman, and I look forward to hearing from 
Governor Gilmore.
    Mr. Tauzin. I thank the gentlelady. The Chair and the 
committee is very grateful that the Chairman of the Commission 
has consented to come and give us his early report and 
summarize the majority of the recommendations of the 
Commission, even those that did not attain the two-thirds super 
majority specified in our legislation, and to recognize and 
present the Governor to the committee, the Chair is now pleased 
to recognize the gentleman from Richmond, Virginia, the 
chairman of the full Commerce Committee, Mr. Bliley, for an 
introduction.
    Chairman Bliley. Thank you, Mr. Chairman, and thank you for 
holding this timely and important hearing. Let me just begin by 
extending a very warm welcome to my good friend, the Governor 
of Virginia, Jim Gilmore. It's an honor to have you here, 
Governor, and you know and I know I've had the pleasure of 
working with you from your days as a Commonwealth attorney of 
Henrico County and when you were attorney general and now, of 
course, as you are the Chief Executive Officer of Virginia.
    This subcommittee has important business to attend to 
today, and the subject is Internet taxes. There's an old saying 
that there's nothing more certain in life than death and taxes, 
and as a former funeral home director and a Member of Congress 
for the last 20 years, I have some familiarity with both 
subjects.
    Today we will here from Governor Gilmore about the work of 
the Advisory Commission on electronic commerce. The committee 
crafted the Internet Tax Freedom Act and the Advisory 
Commission, and it is only fitting that this committee be the 
first to hear the Chairman's report.
    Let me say that I hardly endorse the majority proposals 
that the Governor will outline for us this morning. This 
committee has developed a record on important E commerce 
issues, and if there's one recurring theme in that record, it 
is that taxation and regulation could kill the goose that lays 
the golden egg. I know that some claim that tax revenues will 
erode unless States and localities have the ability to tax 
online retailers, but I have yet to see evidence that 
conclusively shows that E commerce threatens State and local 
tax revenue. Quite the opposite. All the evidence points in the 
opposite direction. If States and localities are permitted to 
tax E commerce and the Internet access, consumer demand will 
wither.
    Now, understand that some, including the Clinton-Gore 
administration, have complained about our lack of a super 
majority consensus on the Commission, but it's hard to 
sympathize with those who complain when they refuse to support 
common sense proposals. I suspect that what's really going on 
here is a hidden agenda, an agenda to tax the Internet. This 
pro-tax faction is now hiding behind alleged process concerns 
as a reason to abstain from voting on proposals that keep the 
tax men out of cyberspace. If that's political leadership, then 
I invented the Internet.
    There's no process concerns here. A majority of the 
Commission has provided this committee and Congress with strong 
and sound proposals that will insure a robust, electronic 
marketplace well into the future. I look forward to enacting as 
many of those proposals as possible. This committee will do its 
share of pushing this important anti-tax agenda along. 
Consumers expect tax relief from this commerce. They should get 
it.
    In closing, let me say that I regard the Internet Tax 
Freedom Act as one of the most important accomplishments from 
the 105th Congress. I am hopeful that Congress will soon be 
able to build on that act. Then we will be able to look back on 
the 106th Congress with the same sense of pride and 
achievement.
    Governor Gilmore, welcome to the Commerce Committee, and 
congratulations for a job well done. Mr. Chairman, I yield back 
the balance of my time.
    [Additional statements submitted for the record follow:]
   Prepared Statement of Hon. Michael G. Oxley, a Representative in 
                    Congress from the State of Ohio
    Thank you, Mr. Chairman, and thanks to Governor Gilmore for joining 
us today to present the Commission's summary.
    Internet technology continues to revolutionize the American way of 
life in every facet, from real-time stock trading and travel 
reservations to online computer games. The Internet has exploded in 
just a few years to become the most creative technological medium in 
history. It is allowing people in rural areas, such as Ohio's Fourth 
Congressional District, to gain easy access to information and 
services, making them less economically remote.
    In fact, many of my constituents are able to access the Internet 
for free, either in their local public libraries or by utilizing one of 
many no-fee Internet service providers. There is no doubt that these 
free options have attracted many thousands of people to the online 
community who would not otherwise have had access.
    The absence of government regulation of the Internet has 
contributed dramatically to its expansion. I think we should be careful 
not to over-regulate the online world and risk stifling its continued 
growth. I was proud to support the Internet Tax Freedom Act in the last 
Congress, which established the three-year moratorium on the imposition 
of Internet-related taxes.
    We are now more than halfway through that three-year period, during 
which the Advisory Commission on Electronic Commerce has worked 
diligently to study the potential effects of access charges and 
taxation on e-commerce. I salute Governor Gilmore and the other members 
of the Commission for their thousands of hours of service to this task. 
I look forward to your testimony today, Governor, and look forward to 
receiving the Commission's full report later this month.
    Thank you, Mr. Chairman. I yield back the balance of my time.
                                 ______
                                 
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress 
                       from the State of Florida
    Mr. Speaker, I thank you for holding this hearing for the Chairman 
of the Advisory Commission on Electronic Commerce to provide the 
Subcommittee with a summary of the Commission's report to Congress. I 
give special thanks to Governor Gilmore and all of his efforts as 
Chairman of the Advisory Commission on Electronic Commerce.
    We are all now familiar with the immense growth and presence of the 
Internet. Electronic commerce is now one of the leading drivers of the 
U.S. economy. It accounts for 2.3 million jobs. The Internet Economy 
exceeded $500 billion last year alone, and more than 17 million U.S. 
households shopped online in 1999. This medium has clearly 
revolutionized our economy, and I think President Reagan best summed-up 
the Government's view of the economy: ``If it moves, tax it. If it 
keeps moving, regulate it. And if it stops moving, subsidize it.''
    Well, before Government was able to get its hand on the Internet in 
order to tax it, Congress passed the Internet Tax Freedom Act, of which 
I was an original cosponsor. I believe it provided a sensible 
moratorium on the burden of Internet taxation. The act imposed a three-
year moratorium on new Internet taxes, while creating the 19-member 
Advisory Commission on Electronic Commerce. The Commission was given 
the formidable task of studying the impact of sales and use tax 
collection on Internet sales and presenting to Congress its 
recommendations on electronic commerce taxation by April 21, 2000. 
Today is the first opportunity for Congress to receive and review a 
summary of the Commission's report prior to the full recommendation.
    The Commission first met in June of 1999, and subsequently its 
members came together three more times, the last being March of this 
year. Over the last ten months, it was to solve the issue of sales and 
use taxes on interstate sales of tangible products. I am disappointed 
that the Commission failed to gain the two-thirds majority necessary 
for a formal recommendation to Congress. As a result of the 
Commission's impass and procedural wrangling, several of the most 
important questions the Commission was given the task of solving, 
whether Congress should mandate simplification of sales and use tax 
administration, and whether the existing nexus standards for interstate 
commerce should be overturned, have not been solved. I admit I am 
disappointed by the three White House members of the Commission who 
abstained on virtually every vote, although they took part in the 
negotiations.
    Thus, at the end of the day, the e-commerce community, government, 
and Americans in general, are left wondering whether a simple and 
equitable solution to these complex issues will be found. Nonetheless 
the Commission is to be commended for its hard work and the formidable 
task it undertook, and a majority of the Commission's members support 
extending the Congressional moratorium in new Internet taxes for five 
more years, repealing the 3% telephone excise, banning taxes on 
Internet access charges, and simplifying the patchwork of state sales 
taxes. These proposals are a common-sense approach to ensuring that 
telecommunications services flourish in the e-commerce age.
    I commend my friend from Louisiana, Mr. Tauzin; the Chairman of 
this committee, Mr. Bliley; and the pioneer of the Internet Tax Freedom 
Act, my friend from California, Mr. Cox, for leading the charge last 
Congress to ensure Government does not stifle the growth of the 
Internet. Furthermore, I intend to introduce legislation prior to the 
April recess, building upon the Commission's recommendations.
    I believe codifying the Commission's recommendations is a necessary 
step in ensuring that the Internet prospers and flourishes, while 
Congress returns to the task of resolving the remaining questions the 
Commission was unable to reach a consensus on. The purpose of the 
legislation is to allow for e-commerce and telecommunications services 
to grow by first repealing the 3% telephone excise tax that was passed 
in 1898 to fund the Spanish American War. Last time I checked, we won 
the war a century ago, but Americans continue to pay a regressive tax, 
generating annually more than $5 billion in general revenue. Similar 
proposals have been introduced in both the House and Senate, and in the 
105th and present Congress. Additionally, I believe the current 
Congressional moratorium on multiple and discriminatory Internet taxes 
should be extended for at least another five years, while Congress 
continues to wrestle with issues of taxes on the Internet. Multiple and 
discriminatory taxes do nothing but increase costs for consumers, and 
threaten by strangulation the boom and prosperity currently spreading 
through the telecommunications industry.
    I welcome input and participation by my colleagues and look forward 
to their comments. I hope to build on their efforts in ensuring that 
the Internet continues to grow free from the burdensome long arm of the 
government.
    Thank you.
                                 ______
                                 
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming
    Thank you, Mr. Chairman, for conducting this important meeting to 
receive the Report of the Advisory Commission on Electronic Commerce.
    Welcome Governor Gilmore.
    Internet taxation is one of the issues I hear most about when 
meeting with local Wyoming officials and small business owners.
    These two groups view this matter as an issue of fairness--as do I.
    In 1998, when Congress levied a broad three-year moratorium--which 
by the way I supported--it was thought we could create this Commission 
to address the issue of multiple taxation of this important new e-
commerce.
    It was a good idea then and I believe it will continue to be a good 
idea but not until taxing jurisdictions can clarify and simplify 
current electronic commerce tax laws.
    The issue of fairness has yet to be addressed.
    As I stated earlier, I supported the moratorium in 1998, and as 
many of you know I am not a proponent of levying taxes against the hard 
working men and women of this country.
    However, without the authority to collect taxes on consumers' 
Internet purchases, in-state retailers are being discriminated against 
due to the Internet becoming a tax haven for consumers.
    Many of us on this committee are former local officials who should 
understand and take exception to this fact since this disparity erodes 
state and local tax revenues.
    I want to thank Governor Gilmore on his leadership and commend a 
few of the Commission's proposals.
    First, extending the moratorium for five years until we get a 
handle on how to address multiple and discriminatory taxes on the 
Internet is a good idea as long as it's taken seriously and gets 
resolved.
    Which leads to the next proposal that encourages states and 
localities to simplify their sales and use taxes in order to create the 
fairness or parity I mentioned earlier.
    Finally, I agree wholeheartedly that we must repeal the three 
percent federal excise tax on telecommunications services.
    Again, thank you Mr. Chairman for holding this important meeting. I 
yield back the balance of my time.
                                 ______
                                 
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    Thank you, Mr. Chairman, for recognizing me.
    It's a pleasure to welcome Governor Gilmore this morning. Governor, 
while I'm keenly interested in your views on electronic commerce, 
certain members of this Committee could also benefit greatly from your 
views on interstate waste. I hope that in the future you'll return and 
that we will be able to help you solve some of the problems you and 
other states are encountering in your efforts to gain control over the 
waste shipped into your states.
    Much has been reported in the press about the activities of the 
Advisory Commission on Electronic Commerce, and opinions strongly 
diverge about the wisdom of its findings and recommendations, among 
both Democrats and Republicans. But at least one thing is clear: The 
job was an extremely difficult one, and each of the 19 commissioners is 
owed a debt of gratitude for their tremendous sacrifice of time and 
effort on the public's behalf.
    The Commission was handed the extraordinary task of sorting out the 
appropriate tax policies that should apply to the online world of 
electronic commerce. It was a task that Congress grappled with for some 
time, but with little success. The Congress hoped that by setting up a 
Commission composed of industry leaders and representatives of all 
levels of government, a fair tax policy could be devised that would 
rationally balance each of the competing interests involved.
    Unfortunately, the Commission was unable to achieve the two-thirds 
consensus required by law to deliver many of its findings or 
recommendations to Congress. Despite the law's specific direction to 
the contrary, I understand Chairman Gilmore intends to transmit a 
report that includes even those recommendations that were unable to 
garner the required 13 votes. That decision is clearly at odds with the 
statute, and is understandably the source of strong criticism from 
within the ranks of the Commission itself.
    I regret that a great many of us in Congress will be obliged to 
treat the bulk of the Commission's report as though it were never 
presented, given the law's clear direction in this matter. And I must 
emphasize that this is not just a case of blindly following form over 
substance. The two-thirds majority requirement was included in the law 
to make sure that Congress could greatly rely on the Commission's 
findings and recommendations since they were expected to be truly 
representative of a consensus view.'
    The ability of Congress to rely on the strength of the Commission's 
report is of paramount importance given the enormous stakes involved in 
this debate. We must find a way to achieve a myriad of equally 
important goals. We need to protect the future growth of electronic 
commerce and, at the same time, preserve the viability of traditional 
producers whose contributions are also vital to the country's economic 
health.
    Just as important, our actions must not put at risk the services 
provided by State and local governments who depend on sales and use 
taxes for up to one-half of the needed financing for schools, roads, 
public safety, and countless other critical services.
    It is for this reason that Congress prescribed a super-majority 
vote on each of the Commission's recommendations. And it is for this 
reason that we should continue working, as long as it takes, and in a 
bipartisan fashion, toward finding an answer that promotes and protects 
all of the substantial economic interests at stake.
    Thank you again, Governor Gilmore, for your dedicated service in 
helping us find answers to these difficult questions. I have every hope 
that we will, in time, solve this puzzle, and the work of the 
Commission will have contributed greatly toward that effort.
    Mr. Chairman, I yield back the balance of my time.

    Mr. Tauzin. I thank the chairman of the committee, and we 
welcome Governor Gilmore for his statement. Governor Gilmore?

 STATMENT OF HON. JAMES S. GILMORE III, GOVERNOR, COMMONWEALTH 
                          OF VIRGINIA

    Governor Gilmore. Chairman Tauzin, Ranking Member Markey, 
members of the Telecommunications, Trade and Consumer 
Protection Subcommittee, I want to thank you for inviting me to 
report on the results of the Advisory Commission on Electronic 
Commerce, and I'm happy to accommodate the subcommittee's 
request to come in and speak to them at this point and time, 
and I will be happy to continue this dialog even beyond this 
day, but I'm happy to be here today at the request of the 
subcommittee.
    I want to begin by thanking speaker Hastert, Majority 
Leader Armey, Congressman Bliley, and Congressman Rogers for 
their support of the Commission's work, as well as Senate 
Majority Leader Lott and Senator Gregg for their efforts and 
guidance as well. All of these leaders helped us through what 
was a somewhat difficult process, particularly 
administratively, and I want to thank them very much for their 
leadership.
    A year of study has confirmed a few important facts. The 
Internet is the most transforming economic development since 
the industrial revolution. Information technology is driving 
America's economic boom, and it's creating new jobs, increased 
productivity, and efficiencies in every sector of the economy, 
and generating new wealth in America.
    The Internet economy is not just facilitating commerce, it 
is creating new commerce, and it is empowering individual 
people in their roles as citizens in a democracy as consumers 
and as entrepreneurs. In recognition of these positive 
realities, the Commission developed a comprehensive set of 
policy proposals for the 21st century economy, including a 
number of tax cuts and tax reforms that will directly benefit 
hard-working men and women and their families and small 
businesses and entrepreneurs across Virginia--excuse me, across 
America. You've got to excuse me, folks.
    First, Congress should eliminate the 3 percent Federal 
telephone tax, an immediate tax cut of over $5 billion for the 
American people each year. This tax was originally established 
as a luxury tax for the few Americans who own telephones to 
fund the Spanish American War of 1898. The war is over, and 
it's time for the Congress to address this issue in this new 
information age. In the information age, it is important to 
reduce the cost of Internet access and to begin to close the 
digital divide by eliminating the regressive tax on people's 
telephones. The policy of the United States ought to be to make 
the Internet more accessible to people.
    Second, Congress should extend the current moratorium on 
multiple indiscriminatory taxation of electronic commerce for 
at least 5 additional years, through 2006.
    Third, Congress should make permanent the current 
moratorium on Internet access taxes, including those access 
taxes that were grandfathered under the Internet Tax Freedom 
Act to reduce the price of Internet access and to close the 
digital divide.
    Fourth, Congress should prohibit taxation of digitized 
goods, information, and services delivered electronically over 
the Internet in order to protect consumer privacy on the 
Internet and to prevent the slippery slope of extending sales 
taxes to all services, entertainment, and information in the 
U.S. economy.
    Moreover, this tax prohibition is essential to maintaining 
U.S. global competitiveness since the United States currently 
dominates the world market in digitized goods such as software 
and content.
    Fifth, Congress should clarify bright line nexus standards 
for American businesses engaged in interstate commerce. The 
cyber economy has blurred the application of many of these 
legal rules, including nexus standards. American businesses 
need clear and uniform tax rules. It is a fair warning and a 
fair assessment of how to conduct business in order to subject 
themselves to these kinds of obligations. Nexus definition 
would assist the American economy by doing that. Therefore, 
Congress should codify nexus standards for sales taxes, in the 
same way that it acted to define nexus standards for income 
taxes 30 years ago in Public Law 86-272.
    Congress should adopt nexus rules or adapt nexus rules to 
the new economies dot come and click and mortar business models 
in order to provide the American people tax freedom on remote 
Internet transactions, to protect small businesses and medium 
sized businesses, from onerous tax collection burdens in 
multiple States and to eliminate costly litigation spurred by 
confusing nexus rules.
    Sixth, the States should undertake a concerted effort to 
simplify their confusing and overlapping telecommunications 
taxes and sales taxes and use tax systems. This effort will be 
particularly important for telecommunications companies and 
their customers as they built out the Internet infrastructure 
and offer new technologies and services.
    Seven, Congress should close the digital divide by 
clarifying State authority to spend TANF reserves to provide 
needy families access to computers and the Internet and by 
targeting tax cuts and Federal matching funds to public-private 
partnerships between States and technology companies. Our 
national goal should be to make the personal computer and 
access to the Internet as ubiquitous as the telephone and 
television is today. Within the next decade, we should work to 
do this and to empower all U.S. citizens to log on and 
participate in the Internet economy.
    Eight, the Congress should respect the paramount importance 
of consumer privacy when crafting any laws pertaining to online 
commerce generally and imposing any tax collection and 
administration burdens on the Internet specifically.
    Nine, Congress should encourage the Administration to press 
for a moratorium on international tariffs on electronic 
commerce over the Internet.
    Now, these are the most important ideas generated in a year 
of open debate and thorough study. The members of the 
subcommittee, of course, have been following this along. 
Everything has been open, on the Internet, reported carefully 
within the newspapers and in journals, and has been thoroughly 
examined as an enlarged body of work over this entire year.
    Consistent with direction from Speaker Hastert and Senator 
Lott, some of the Commission's policy proposals will come to 
the Congress by way of a two-thirds vote, the statutory hurdle 
for our formal recommendation or finding process, and some will 
come with a majority vote of 11 to one, with seven votes 
abstaining. Taken together, they provide Congress a 
comprehensive foundation for bold and innovative ideas for 
legislative action that will have a tangible and positive 
impact on the lives of working men and women and their 
families.
    Now, I believe the Internet is responsible for the advent 
of a new age of opportunity for American people as citizens, 
consumers, and entrepreneurs. America's response to this 
marvelous tool of individual empowerment should not be to tax 
the Internet and the people who use it, and I believe the ideas 
generated from this Commission will leave a lasting legacy on a 
new way of thinking for a new century, and it's a new paradigm 
for the 21st century.
    It's my honor to serve as chairman of this Commission, and 
I want to thank you very much for inviting me to come and be 
with you today, and I'm happy to respond to that request of the 
subcommittee to appear with you today and answer any questions 
you may have. Mr. Chairman.
    [The prepared statement of Hon. James S. Gilmore III 
follows:]
   Prepared Statement of Hon. James S. Gilmore III, Governor of the 
Commonwealth of Virginia & Chairman, Advisory Commission on Electronic 
                                Commerce
Introduction
    Chairman Tauzin, Vice Chairman Oxley, Ranking Member Markey, and 
members of the Telecommunications, Trade and Consumer Protection 
Subcommittee, thank you for inviting me to report to you on the results 
the Advisory Commission on Electronic Commerce.
    Let me preface these remarks by recognizing the exemplary service 
of all members of the Advisory Commission on Electronic Commerce. The 
Congress took great care in appointing distinguished leaders from 
diverse perspectives and from the public and private sector.
    They include several distinguished leaders from the private sector: 
Michael Armstrong of AT&T, Grover Norquist of Americans for Tax Reform, 
Richard Parsons of Time Warner, Bob Pittman of AOL, David Pottruck of 
Charles Schwab, John Sidgmore of MCI WorldCom and UUNet, Stan Sokul on 
behalf of the Association of Interactive Media, and Ted Waitt of 
Gateway. And they include an equally impressive group from the public 
sector representing state and local governments: Dean Andal, Chairman 
of the California Board of Equalization, Delegate Paul Harris of the 
Virginia General Assembly, Commissioner Delna Jones of Washington 
County, Oregon, Mayor Ron Kirk of Dallas, Texas, Governor Mike Leavitt 
of Utah, Gene LeBrun of the Commissioners on Uniform State Laws, and 
Governor Gary Locke of Washington State. And representing the Clinton-
Gore Administration were Joe Guttentag of the Department of Treasury, 
Andy Pincus of the Department of Commerce, and Bob Novick of the Office 
of U.S. Trade Representative.
    These people devoted thousands of hours and their creativity in the 
service of the hardworking people of the United States. I assure you 
that these distinguished people accomplished great deeds on the 
people's behalf. You can be proud of their efforts.
    Most importantly, I am proud of the quality of the ideas that will 
be reported to Congress. Speaker Hastert asked the Commission to send 
``sound policy proposals for the individual taxpayers of America,'' and 
Senate Majority Leader Lott requested us to forward ``a clear and 
unambiguous policy proposal. . . , especially if that proposal is bold 
and innovative.'' That is precisely what the Congress will receive.
The Commission Has Successfully Fulfilled Its Charge
    The Advisory Commission on Electronic Commerce was established by 
Congress to conduct a thorough study of federal, state, local and 
international taxation of electronic commerce. For the last 10 months, 
19 Commissioners have been deeply engaged in that endeavor.
    The Commission held its first meeting in Williamsburg, Virginia, in 
June of 1999. We met again in New York City in September, and then 
again in San Francisco in December. The Commission held its last 
meeting in Dallas, Texas, in March of 2000, and then concluded its 
business on a conference call a week later.
    The Commission came a long way in 10 months. Since June of last 
year, the Commission heard testimony from over 55 experts, academics, 
think-tanks and interest groups representing a broad range of 
perspectives on tax and electronic commerce policy. Each Commissioner 
was able to invite their own experts to express a viewpoint. We heard 
from every quarter, from the Heritage Foundation to the National 
Governor's Association and Wal-Mart.
    The Commission also received over 7,000 pieces of mail and over 
50,000 e-mails. Every viewpoint has been heard. The Commission's 
library has grown to over 280 selections. Our Website received an award 
from MuniNet -- it was selected as one of that publication's top sites 
for 1999. That website will be archived by the Library of Congress for 
posterity. Our Commission has been viewed by hundreds of thousands of 
people on C-SPAN and via webcasts of our meetings.
    By the time the Commission arrived in San Francisco in December, we 
had distilled dozens of issues into a ``Policies & Options'' Paper. 
That paper guided an open and engaged debate at the San Francisco 
meeting and propelled the Commission to our final meeting in Dallas 
where we voted on specific policy proposals and attempted to come to 
constructive policy conclusions in the best interests of the American 
people. I am confident that conclusions we reached will indeed benefit 
the people of the United States with regard to the taxation of 
electronic commerce.
    In short, the Commission fulfilled its public obligation to engage 
and educate the people of the United States on the policy of Internet 
taxation, and its statutory charge to report the results of our study 
to Congress no later than April 21, 2000.
    On behalf of the Commissioners, I extend our special appreciation 
to Speaker Hastert, Majority Leader Armey, Congressman Bliley and 
Congressman Rogers for their support in making the Commission a 
success, as well as Senate Majority Leader Lott and Senator Gregg for 
their efforts and guidance. I also applaud the foresight of Senator 
Wyden and Congressman Cox in sponsoring the Internet Tax Freedom Act 
which created the Commission.
The Internet is Driving the New Economy
    A year of study has confirmed at least a few important 
principles.The Internet is the most transforming economic development 
since the Industrial Revolution. Information Technology is driving 
America's economic boom--creating new jobs, increasing productivity and 
efficiencies in every sector of the economy, and generating new wealth 
in America. The Internet economy is not just facilitating commerce--it 
is creating new commerce. And it is empowering individual people in 
their roles as citizens in a democracy, as consumers, and as 
entrepreneurs. Every person on the Commission recognized that our 
national economy, U.S. global competitiveness, and American culture 
depend vitally upon nurturing full development of the Internet.
    I believe the Internet and information technology, combined with 
the creativity and hard work of the American people, are responsible 
for the advent of a new Age of Opportunity. For the first time ever, 
consumers can locate perfect information and access to goods and 
services at the touch of a button, and small businesses and 
entrepreneurs can--for the first time in history--reach a global 
marketplace and compete with big, capital intensive companies. The 
result is a digital marketplace even Adam Smith would marvel.
    Evidence that the Internet is driving America's economic boom 
abounds and was most recently documented in a study conducted by the 
University of Texas' Center for Research in Electronic Commerce. 
According to the study, the nation's Internet-based economy grew 68 
percent last year to produce over $507 billion in business revenues. 
The Internet economy has created 2.3 million new jobs. The Internet and 
information technology sector now accounts for more than half the 
capital investment in our country. And of the tens of thousands of new 
businesses being created every year, research shows nearly one in three 
did not exist prior to 1996. One sector of the Internet economy--
electronic commerce--accounted for nearly 1 million of the 2.3 million 
jobs created by the Internet.
    Even in rural areas long ago ignored by the economic progress in 
metropolitan areas and bypassed by the Nation's huge investment of 
public resources on the interstate highway system, small businesses are 
prospering by selling products worldwide. The Virginia Diner in rural 
Wakefield, Virginia, is a perfect example. The nation's huge investment 
of tax dollars in the interstate highway system left Rt. 460, a classic 
small town ``Main Street,'' virtually abandoned years ago. Those people 
who happened through Wakefield could stop into the Virginia Diner and 
buy a cup of coffee and a can of Virginia peanuts. But the Internet 
economy has empowered VaDiner.com to sell Virginia peanuts to consumers 
from Spain to California to Tokyo. Due to the boom in Internet sales, 
the Virginia Diner has increased its employment in Wakefield from 70 to 
120 employees over the last three years and this year the Diner will 
invest over $100,000 in new computer hardware and software.
    This new economic activity, increased productivity and job creation 
is generating new wealth and increasing tax collections by governments. 
Indeed, the Internet economy has local, state and federal tax coffers 
fuller and growing faster than ever through the massive job creation 
and capital investment occurring in every state in the Nation. The 
National Governor's Association reports that the states collectively 
took in $11.3 billion in tax surpluses in 1998 despite tax cuts 
totaling $5.3 billion in 1998 and $4.9 billion in 1997. And end-of-year 
balances for all states totaled $35 billion by the end of 1998. In 
1999, the states collectively took in $7.5 billion in tax surpluses 
despite additional tax cuts totaling $7 billion. Sales taxes in 
particular continued to increase in 1998 and 1999--the states 
collectively took in surpluses of sales taxes totaling $2.3 billion in 
1998 and $2.2 billion in 1999 as people spent their new wealth.
The Challenge for Public Policy--Government Must Change
    Underlying all the documented numbers is a profound social and 
economic transformation. Every sector of our society is challenged to 
adapt to the new Internet economy. Business is being conducted 
differently. Business models are changing. Companies are more efficient 
and productivity per employee is increasing exponentially. The same 
transformations are occurring in education, in the way Americans live, 
obtain information and conduct their own lives. Fundamentally, this 
technology empowers. It empowers businesses, business leaders, 
employees, educators, and mostly it empowers each individual citizen.
    All of this evidence validates the maxim: The Internet changes 
everything. More to the point, the Internet changes everything 
including government. Old rules do not work well in this new borderless 
economy. Sometimes they do not work at all. Regardless, change is 
everywhere, and government has to change as well.
    In the Internet economy, government at all levels must change its 
policies as well as the way it operates. The Internet is driving a 15 
percent increase in revenues and productivity per employee in the 
private sector economy, according to the University of Texas' Center 
for Research. Government must marshal the Internet to become equally as 
productive per public employee in the delivery of government services. 
The result should be a dividend to American taxpayers through lower-
cost, more efficient government. The savings should be re-prioritized 
to other government services so that no city goes without fire trucks 
or schools, and taxes should be kept low.
Policy Prescriptions for the 21st Century
    That brings me to policy prescriptions for the 21st Century 
economy. I point out that the some of the Commission's policy proposals 
will come to the Congress by way of a two-thirds vote--the statutory 
hurdle for a proposal to take on the elevated status as a formal 
``recommendation'' or ``finding.'' On issues such as international 
tariffs, consumer privacy, and the digital divide, we came to two-
thirds votes, though I was disappointed representatives from the 
Clinton-Gore Administration abstained on these consensus issues. On a 
host of core tax issues, the Commission came to a clear majority by a 
vote of 11 to 1 (with 7 votes abstaining) and we will share the results 
of our work on those topics with you, as well, as requested by Speaker 
Hastert and Senate Majority Leader Lott.
    Let me provide one disclaimer regarding my personal opinion which 
is the position I advocated within Commission debates. I believe that 
no taxation is presumptively necessary. To the contrary, the 
presumption should favor the right of individual citizens to keep their 
own hard-earned money. Government must prove a tax is absolutely 
necessary for the provision of essential services before taxing a new 
realm of economic activity or human endeavor. Government has no right 
to expand tax burdens on Americans just because a similar commercial 
transaction is taxed. Government should take only what it needs to 
operate government and stop there.
    And in the context of electronic commerce, America's response to 
the Internet revolution should NOT be to tax it or all the people--the 
individual taxpayers, consumers and small businesses--who have been 
empowered by it. In my view, the history of the 20th Century was about 
bigger government built at the expense of hardworking people. But the 
21st Century offers the promise of smaller, more efficient government 
and a proportionate increase in the economic freedom and liberty of 
individual people who are permitted to keep more of their own money.
    In my view, the Internet changes everything, including government. 
Government at all levels must begin now to harness the efficiencies and 
productivity increases facilitated by Information Technology and the 
Internet. Free enterprise is doing it. Government must do it, too.
    That opinion was not shared universally on the Commission. 
Nevertheless, a majority of Commissioners approved policy prescriptions 
that, in my view, advance these objectives. Among the ideas submitted 
in this Report, you will find proposals for the following tax cuts and 
tax reforms:

 First, Congress should eliminate the 3% federal telephone 
        tax--an immediate tax cut of over $5 billion annually for the 
        American people. This tax was originally established as a 
        luxury tax for the few Americans who owned a telephone to fund 
        the Spanish American War of 1898. Since that time, it has been 
        scheduled for extinction for decades, but was finally made 
        permanent in the late 1980s. In the Information Age, it is 
        important to stop taxing people's telephones. Elimination of 
        this regressive tax is an important first step in reducing the 
        expense of Internet access, one of the contributing factors to 
        the digital divide. While this tax once was justified as a 
        luxury tax on the few Americans who owned a telephone, it has 
        no rationale in the Information Economy.
 Second, extend the current moratorium on multiple and 
        discriminatory taxation of electronic commerce for an 
        additional five years through 2006.
 Third, prohibit taxation of digitized goods sold over the 
        Internet. This proposal would protect consumer privacy on the 
        Internet and prevent the slippery slope of taxing all services, 
        entertainment and information in the U.S. economy (both on the 
        Internet and on Main Streets across America). Moreover, this 
        tax prohibition is essential to maintaining U.S. global 
        competitiveness since the United States currently dominates the 
        world market in digitized goods.
 Fourth, make permanent the current moratorium on Internet 
        access taxes, including those access taxes grandfathered under 
        the Internet Tax Freedom Act. This proposal is another crucial 
        initiative, targeted to reduce the price of Internet access and 
        to close the digital divide. By expanding the moratorium to 
        eliminate the current grandfather provision, consumers across 
        the country would participate in electronic commerce without 
        onerous tax burdens.
 Fifth, establish ``bright line'' nexus standards for American 
        businesses engaged in interstate commerce. The cyber economy 
        has blurred the application of many legal nexus rules. American 
        businesses need clear and uniform tax rules. Therefore, 
        Congress should codify nexus standards for sales taxes in a way 
        that adapts the law of nexus to the New Economy and the new 
        ``dot com'' business model. Codification of nexus would serve 
        several important policy objectives: (1) provide businesses 
        ``bright line'' rules in an otherwise confusing system of 
        state-by-state nexus rules; (2) protect businesses, especially 
        small businesses, from onerous tax collection burdens; (3) 
        reduce the amount of costly litigation spurred by confusing 
        nexus rules; (4) nurture the full growth and development of 
        electronic commerce; and (5) give consumers and individual 
        taxpayers who participate in Internet commerce a tax break.
 Sixth, place the burden on states to simplify their own 
        labyrinthine telecommunications tax systems as well as sales 
        and use tax systems to ease burdens on Internet commerce. This 
        effort will be particularly important for small and medium-
        sized retailers with nexus in two or more states. It also will 
        be important for telecommunications companies as they build out 
        the Internet infrastructure and offer new technologies and 
        services. Radical simplification will be necessary in the New 
        Economy if small and medium-sized businesses are to succeed.
 Seventh, clarify state authority to spend TANF funds to 
        provide needy families access to computers and the Internet, as 
        well as the training they need to participate in the Internet 
        economy. This is one strategy the Commission formally 
        recommends to close the digital divide and make the personal 
        computer and access to the Internet as ubiquitous as the 
        telephone and television.
 Eighth, provide tax incentives and federal matching funds to 
        states to encourage public-private partnerships to provide 
        needy citizens access to computers and the Internet. This is 
        yet another strategy the Commission formally recommends to 
        close the digital divide.
 Ninth, respect and protect consumer privacy in crafting any 
        laws pertaining to online commerce generally and in imposing 
        any tax collection and administration burdens on the Internet 
        specifically. This is a formal recommendation of the 
        Commission.
 Ten, continue to press for a moratorium on any international 
        tariffs on electronic transmissions over the Internet. This 
        idea also is a formal recommendation of the Commission.
 And eleven, a majority of the Commission endorsed a 
        comprehensive framework for addressing international tax and 
        tariff issues based upon the following core principles: no new 
        taxes or tax structures on electronic commerce in the world 
        marketplace; tax neutrality toward electronic commerce; 
        simplicity and transparency of tax rules applied to electronic 
        commerce; and a call for the Organization of Economic & 
        Community Development (OECD) to continue fostering 
        international dialogue and cooperation on international tax 
        issues.
    These are the key ideas generated in a year of open debate and 
thorough study.
    As you can see, the Advisory Commission on Electronic Commerce has 
been busy. Some our ideas obtained a two-thirds majority to rise to the 
level of formal ``recommendations'' while others obtained a clear 
simple majority by a vote of 11 to 1 (with 7 votes abstaining). Taken 
together, they comprise a comprehensive package of ideas to inform 
Congress of the comprehensive array of tax issues implicated by the 
Internet. Consistent with direction from Congressional leadership, the 
Commission has provided Congress a bold and constructive foundation for 
legislative action that will have a tangible and positive impact on the 
lives of working men and women and their families.
    It has been my high honor to serve the people of the United States 
as Chairman of the Advisory Commission on Electronic Commerce. I thank 
the Congress for entrusting me with this critical role in shaping ideas 
for the 21st Century. I thank my fellow Commissioners for their keen 
insights and creativity and, most of all, for their great sacrifices of 
time and effort in the service of our Country. Few chairmen can claim 
to have presided over a more distinguished assembly of public and 
private leaders. The Commissioners can be satisfied their labors have 
advanced the best interests of the people of the United States, and the 
Congress can be proud of the quality of ideas they have delivered. 
These ideas will leave a lasting legacy on a new way of thinking for a 
new century. This Commission has rung a bell for the 21st Century and a 
new paradigm in America. For that, I am very proud.
    Thank you for inviting me and I would be happy to answer any 
questions.

    Mr. Tauzin. Thank you very much, Governor. The Chair will 
yield himself the appropriate time and yield that time to the 
author of the legislation which created the Commission, the 
gentlemen from California, Mr. Chris Cox.
    Mr. Cox. Thank you, Mr. Chairman, and welcome, Mr. Chairman 
and Mr. Governor. Your leadership on this Commission is truly 
something for which the Nation should be grateful. I think all 
of us on this committee who wrestled with this legislation in 
the first instance recognized how difficult these issues are. 
Whenever you are considering changing the rules for not just 
the Nation's economy but the global economy, there are a lot of 
special pleaders, and a lot of people affected by this, and so 
it cannot be easy. What you have done, lending dignity to the 
proceedings and making sure that the intellectual product has 
been so substantial is something for which I think all of us 
are truly grateful.
    As Chairman Tauzin has indicated and as you know, I didn't 
invent the Internet, but I can claim some credit for inventing 
the Internet Tax Freedom Act along with Ron Wyden, an alumnus 
of this committee who's now in the Senate. Our purpose in 
including in the legislation that bans new, multiple, and 
discriminatory taxes on the Internet, including in that 
legislation a commission, was to recognize our own 
shortcomings. We wrote this legislation 2 years ago, and the 
new economy has developed amazingly since that time. We 
couldn't know 2 years ago even what all of us in this room know 
today about technology, and we have to recognize our own 
limitations in looking forward.
    What you have been able to do is bring a lot of expertise 
from across the country and around the world to bear on the 
question of what should our tax policy be for the 21st century. 
We cannot apply the tax policies developed for smokestack 
industries to the new economy. So, I'm very impressed that you 
have come up with so many recommendations and that they are in 
fulfillment of the charge most recently given by the speaker of 
the House and the Senate majority leader, truly bold and 
innovative, and you didn't go for a sort of dumbing down to the 
lowest common denominator to achieve consensus.
    Two of your recommendations are particularly striking, and 
I want to ask you about those. First, you ought not only to 
extend the current moratorium on new, multiple, and 
discriminatory taxes, and you want not only to permanently ban 
Internet access taxes, but you want to include in that ban a 
few taxes that were grandfathered because they were already on 
the books before Congress could act a few years ago. I want to 
ask you about that and about the repeal of the Spanish-American 
War tax, whether or not in both cases you have a two-thirds 
vote.
    Governor Gilmore. Congressman, the sense of the Commission 
as we went along was that there were burdens on 
telecommunications, burdens on the Internet that ought to be 
eliminated. There was a proposal that came forward that drew an 
11 to 1 vote but did not reach the 13 vote, so that was a part 
of this, but the Commission's report, while it is not a 
recommendation, the Commission's majority report has come 
forward and suggested that we ought to, in fact, extend the 
moratorium but to recognize that there was a flaw in the 
moratorium, that the moratorium as currently constituted 
contains grandfathering clauses to continue to allow taxation 
on Internet access if it previously existed.
    In the interest of consistency and the growth of the 
industry and the opportunities for working men and women 
everywhere, because after all, it's individual citizens that 
pay this access tax, not businesses, the report that will be 
coming forward will suggest that the Congress, in fact, 
eliminated those grandfathered taxes and have a consistent 
across the board approach that says we should not be taxing 
access to the Internet. That will be an extension or an 
addition to the current moratorium which we believe is too 
limited at this point. Also, the----
    Mr. Cox. I'm sorry, Governor, was the Commission 
essentially unanimous on that point or was----
    Governor Gilmore. No, it was not, as a matter of fact. The 
proposal came forward with this and a number of other 
proposals, and that passed as a part of the report at 11 to one 
with seven abstentions, but it was not a consensus by any 
means, to my amazement.
    Mr. Cox. I see. But in fact, there was only one vote 
against it.
    Governor Gilmore. That's correct. There were seven 
abstentions. Please understand, Congressman, that the way that 
this act was structured, if the conclusion had been that there 
was--if the Congress's direction had been interpreted, there 
could be no work product of this Commission in the absence of a 
13 vote or better, then we should never have bothered to have 
met, but I don't believe that's what the Congress intended.
    Mr. Cox. What I can tell you, since I at painstaking length 
wrote those provisions with Governor Leavitt and mostly in my 
office, that at least what the author of the legislation had in 
mind was that if we were going to have a Congressionally 
chartered commission recommending higher taxes on the Internet 
back to Congress, I wanted that to be a two-thirds vote. We 
didn't want to make it easy for a commission to go out and 
recommend higher taxes and come back to us. I think it's 
abundantly clear that there was no recommendation to tax the 
Internet that received a two-thirds vote, and so the purpose of 
the two-thirds provision has been met, but I agree with you. We 
are interested in the information that you assembled, and it 
was certainly not the intent of the legislation to prevent the 
commission from reporting back everything that it wished to 
report back to us. In fact, I think I may have had the 
opportunity to mention, publicly or private before, that when I 
served as a Presidential appointee appointed by President 
Clinton on another commission that was looking at Social 
Security taxes, also a tough issue, the so-called Entitlement 
Commission, the Cary Danforth Commission, that the only way we 
could put out a report was to have every single one of the 
commissioners put down his separate views, and that's what we 
did. The people of the country deserve a report back, and the 
fact that you had an 11 to 1 vote, it seems to me, puts a lot 
of weight behind your recommendations.
    Governor Gilmore. Yes, sir, an 11 to 1 vote to eliminate 
all access taxes to the Internet and also to eliminate this 3 
percent Spanish-American war tax as well came out at 11 to 1. 
There was a more pro-tax plan that was brought forward, but it 
never mustered more than eight votes, and therefore never even 
rose to any type of majority of any kind.
    I agree, as chairman, I believe I certainly tried to follow 
the Congress's guidance on this. The Congress certainly wanted 
to have our information, and then of course, it would be 
persuasive to the Congress if we ever did achieve a two-thirds 
majority on anything which, of course, we did in two areas. 
Otherwise, we thought that this information and the work 
product of the Commission should come forward to the Congress 
for the value that Congress wishes to give it.
    Mr. Tauzin. The gentleman's time has expired.
    Mr. Cox. I thank the chairman.
    Mr. Tauzin. The Chair now recognizes the gentleman from 
Massachusetts, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, very much. If we could 
step back for a little bit, I think that just by the fact that 
we are debating Internet taxation, we necessarily are debating 
all taxation because, of course, if we are going to exempt one 
part of the American economy from taxation, we have to 
necessarily talk about increase in taxation in another part of 
our economy. There's just no way around it. We have a certain 
amount of Medicare, Social Security, education, fire, go right 
down the whole line, of services which Americans need, and 
there's a finite amount of money which has to be produced in 
order to accomplish those goals.
    So, if we assume that no one's talking up here about 
reducing the amount of revenue that is available at the State 
and local, for that matter, national level, then we have to 
keep that number constant. Now, if we're having a different 
debate, which is that this should be something which is viewed 
as a tax cut, a tax cut that leads to revenue reductions which 
reduce our capacity to be able to deal with police, fire, 
education, Medicare, Medicaid, then that's a different debate, 
but it's necessarily part of the discussion which we have to 
have.
    So, in yesterday's National Journal, quite interestingly, 
Bill Archer, the chairman of the Ways and Means Committee, 
along with John Linder and Collin Peterson, a Democrat, all 
talked about essentially moving to a 23 percent national sales 
tax as the form of raising revenue here for the Federal 
Government, doing away with the income tax.
    Now, if we move to a national sales tax, I guess my 
question would be under your proposal, would there be a 
capacity to tax any of the revenue which is generated by means 
of retail sales online?
    Governor Gilmore. Congressman Markey, there wasn't anything 
in this Commission that suggested that we ought to have either 
a national sales tax or that one was necessary.
    Mr. Markey. No, I mean if we did move to that model, that 
the chairman of the Ways and Means Committee is now proposing 
that we have a national sales tax, would we under your proposal 
merge with that proposal, if both became law, be able to tax 
Internet online retail transactions.
    Governor Gilmore. The Commission never found that there was 
any evidence that was persuasive, at least to the majority of 
the group, that said that there was a necessity for a national 
sales tax or that one, in fact, ought to be imposed. In fact, 
even moving beyond that to the question of the State and local 
sales taxes which was the central issue that we addressed, we 
took note of the fact, of the evidence that was presented to 
us, that the States and localities are awash in money, that as 
the Internet economy grows, nonetheless, the States and 
localities are not losing money. They are gaining money. The 
States collectively took in $11.3 billion in tax surpluses in 
1998, despite even tax cuts during 1998, $4.9 billion in 1997. 
End of the year balances on rainy day funds are awash in money. 
The States took in $7.5 billion in tax surpluses despite 
additional tax cut, and as it grows----
    Mr. Markey. If I can just interrupt you briefly.
    Governor Gilmore. Yes, sir.
    Mr. Markey. Because Massachusetts and Virginia kind of vie 
for a very close second with Silicon Valley in terms of this 
entire area, so I agree with you that we are awash in money 
today. Unfortunately, we already lived through one 
Massachusetts miracle that created a candidate of some note 
running for the presidency in Massachusetts in 1988. 
Unfortunately, that miracle did evaporate for 3 or 4 years, and 
tax revenues did diminish greatly. So, we can't really predict 
the weather of 2 or 3 or 4 years from now by looking out the 
window today.
    So, I guess my question to you, Governor, is this. Do you 
personally support doing away with all taxation, including 
sales taxes on the Internet, even if--and again, it's an 
integrated debate--Bill Archer and the Republican party here, 
move for a national sales tax to replace the national income 
tax. Where would you stand on that issue?
    Governor Gilmore. Well, first of all, Congressman, let me 
just say that the Commission has produced a majority report 
that does not think that we have any necessity of producing 
additional sales taxes in order to fund those State services 
that you were speaking about, and it is not correct to say that 
all sales tax issues are tied up with Internet sales tax 
issues. It is not necessarily the case that one goes hand in 
hand. The question that was before the Commission is in this 
new area of commerce, is it a necessity either philosophically 
or as a matter of funding of State government to extend 
taxation into this new area, and the conclusion of the 
Commission was that it was not.
    My personal view is that we can strike a reasonable balance 
that, in fact, makes it very clear that we can collect the 
revenues. We can put all of this into effect without extending 
those tax obligations onto the Internet.
    Mr. Markey. See, Governor, if I may just for 10 seconds 
just summarize that we had another distinguished alumnus of 
this committee, David Stockman, who argued quite persuasively 
in 1981 that a central fallacy was possible to be accomplished, 
which was we could cut taxes dramatically, increase defense 
spending, and balance the budget simultaneously. We always 
admired his ability to an eye-watering detail defend knowingly 
erroneous premises, okay? He was great at that, but we really 
can't argue with the one hand that we can cut taxes and 
continue to fund at the same time existing social service 
programs at the same level. I appreciate your testimony here 
today. Thank you.
    Mr. Tauzin. Thank you, Governor. Mr. Markey, it just 
occurred to me as an observation that the Massachusetts economy 
and the Presidential candidate sort of both went into the tank 
at the same time.
    Mr. Markey. It's something that hasn't been lost on us 
politically. Governor Weld's whole career is premised.
    Mr. Tauzin. I thank you, my friend. The Chair recognizes 
the gentleman from Richmond, Virginia, the chairman of the full 
committee, Mr. Bliley.
    Chairman Bliley. Governor, the Commission spent some time 
looking at this issue of State and local taxation of Internet 
access, and I note that the majority concluded that Congress 
should eliminate all such taxes because the impact these taxes 
have on consumer demand for Internet access services, is that 
correct?
    Governor Gilmore. Congressman, you were asking whether or 
not--I'm sorry, repeat your question.
    Chairman Bliley. The Commission spent some time looking at 
the issue of State and local taxation on Internet access.
    Governor Gilmore. Yes, on access, yes, sir.
    Chairman Bliley. And I note that the majority concluded 
that Congress should eliminate all such taxes, is that correct?
    Governor Gilmore. That is correct, Congressman.
    Chairman Bliley. I also note that the FCC imposes access 
charges on long distance carriers for the cost of using the 
local telephone network and that some have raised concerns that 
the FCC might some day extend access charges to Internet 
service providers. If so, would FCC impose access charges raise 
the same concerns? In other words, would access charges on 
Internet access have the same consumer impact as taxation of 
Internet access?
    Governor Gilmore. Congressman, I think it would. The 
Commission did not address this specific issue, but they did 
address in general the burdens that are placed upon individual 
working men and women who have to pay fees in order to have 
access to the Internet, in order to close the digital divide 
and to make the access to the Internet more available to every 
American. It was the sense of the Commission that Congress 
ought to reduce every burden that it possibly can. I would 
think that the issue of whether or not there was to be access 
fees charged to Internet companies which then might be passed 
on to individual working men and women would be a concern of 
the Commission because we addressed it in other ways, like the 
3 percent excise tax and like taxation on Internet access.
    Chairman Bliley. Some pro-tax advocates are arguing that 
the Commission's report is laden with special interest favors 
for big business. Could you walk us through the tax cuts and 
tax benefits for individual citizens?
    Governor Gilmore. Yes, sir. I think that it is not fair and 
probably just an effort by pro-tax people to try to knock down 
the Commission report to suggest that somehow this is some 
group of special interest legislation. I don't think that's 
right at all. Certainly the sense of the conservatives on the 
Commission was that we were in it for the people of the United 
States. We wanted to try to deliver tax cuts to the people of 
the United States, and I think that the Commission report does 
propose that, and specifically, it suggests that we should 
eliminate the 3 percent excise tax on telecommunications, 
again, that was imposed almost a century ago to fight the 
Spanish-American war. The reason you do that is not because 
businesses pay the tax but because individual working men and 
women pay the tax on telecommunications, which is a burden on 
access to the Internet.
    There was a proposal--there is a proposal to eliminate the 
access taxes on the Internet that even today are imposed by 
certain States and localities, not because businesses pay those 
taxes but because working men and women and families pay those 
taxes across the country. So, certainly there are those 
proposals.
    There is a proposal that we come forward and define what 
nexus means, as we in fact have done, as the Congress did in 
the case of income taxes. We do that in the case of sales taxes 
as well, and that will give fair warning to businesses, when 
especially small business, that when they engage in this 
activity as to what is going to subject them to tax collection 
obligations or other kinds of obligations as well.
    There, of course, are proposals that the Congress also 
urged that there be no taxes on digitized goods. If you begin 
to go toward the taxation of digitized goods, then you have to 
find a way to impose that tax. To do that means that you just 
have to simply invade the transactions on the Internet of 
individual people that are doing business with every retailer 
across the world globally on the Internet, and you have to 
understand what that transaction is and it has to be reported 
to some government some place.
    One place we did rise to a two-thirds majority was privacy 
concerns within this Commission, is the recommendation of this 
Commission, a full recommendation that the Congress be very 
sensitive to privacy concerns. That means that we have to be 
very alert to the fact that the invasion of these transactions 
is a potential invasion of privacy, which would mean, by the 
way, that people will not use the Internet if they think that 
all of their information is going to be made available to 
anyone. Privacy is a very key issue in that area.
    There of course are approaches also to address the digital 
divide, something that's very near and dear to my heart. We 
believe that--the assertion that was made a little while ago 
that this is somehow a suggestion that this is a system for the 
rich is a very backward looking approach. We have to recognize 
that just as the phone has now become available to everyone, 
the Internet, that must be the goal of America, to make the 
Internet available to everyone as well.
    So, to close the digital divide by the use of TANF funds 
and other efforts and partnerships between government and 
localities and States and private businesses in order to make 
more people have access to the Internet should be our goal.
    These are all the proposals that are included in one form 
or another, recognizing of course that the privacy concern 
rises to that dignity of the two-thirds proposal.
    Chairman Bliley. Thank you, Mr. Chairman. I see my time has 
expired.
    Mr. Tauzin. I thank the gentlemen. The Chair now recognizes 
the gentlelady from California, Ms. Eshoo, for 5 minutes.
    Ms. Eshoo. Thank you, Mr. Chairman. Governor, I'd like to 
go back to some of the underlying themes that I expressed in my 
opening statement.
    Governor Gilmore. Yes, ma'am.
    Ms. Eshoo. Because I think that it's important to establish 
the context. Do I believe that there are many areas where 
essentially weeds have grown around this system where there are 
overlays in terms of our taxes and taxing system that really 
should be removed from the books? Of course I do. I have the 
privilege of representing a Congressional district that is the 
prime engine in our Nation that has caused the expansion in our 
economy that produces not only the ideas, possesses the 
intellectual property, and makes them real in our Nation, which 
is Silicon Valley. So, I think that I have a first-hand view, a 
very deep and broad view, and appreciation of the issues that 
have brought the Internet to the place that it is today and 
will continue to make cyberspace one of the most exciting and 
economic privileges for our Nation and for the world.
    I want to go back to a couple of things because I think 
something is getting ahead of us here, and that is that the 
Commission produced what you are here reporting on today, and 
that is not the fact. Can you tell us how many Governors 
supported what you have brought forward today?
    Governor Gilmore. How many Governors, Congresswoman?
    Ms. Eshoo. Uh-huh.
    Governor Gilmore. I haven't taken a count on Governors. Our 
goal here was to work with the 19 members of the Commission, of 
which only three Governors, of course, were appointed to the 
Commission, and I haven't taken a count. I know that when I 
spoke at NGA, I thought that many of the Governors were very 
ambivalent about, as a matter of fact, about what the right 
approach was and were willing, like I have been, to keep an 
open mind and to listen and to actually get the facts and the 
evidence.
    The key point here is, I think, is that of the State and 
local representatives that were appointed to this Commission, 
four supported a strong pro-tax position and three supported a 
strong anti-tax position. I might say that Andal of California 
and myself represent more people than all the others combined 
that were, in fact, in favor of pro-taxes.
    Ms. Eshoo. Are you aware of the language that established 
the Commission that stated that no finding or recommendation 
shall be included in the report unless agreed to by at least 
two-thirds of the members of the Commission? I think that's 
very important. I think that, you know, if I were on the flip 
side of the questions that I'm asking you, that it could be 
suggested that I'm filibustering and that I want to tax 
everything to death. That's not the point. I think we need to 
be very fair about this and understand the context in which you 
come before us today. Why was Governor Leavitt not allowed to 
even submit some minority view?
    Governor Gilmore. Two points, Congresswoman. First of all, 
the report itself did not require a two-thirds consensus to be 
yielded up to the Congress. In fact, I would not think that 
Congress would want all this work to be done, this body of 
information to be thrashed out and then not be able to submit 
any kind of report because a solid block of pro-tax folks would 
block any report. I think that was the effort, really, of the 
abstention votes, but it didn't work because you can't have a 
tyranny of the minority, and I don't think that the Congress 
dictated it.
    Ms. Eshoo. Governor, with all due respect, I don't think 
what the Congress established was tyranny. I think that they 
established something----
    Governor Gilmore. No, no, I didn't suggest that.
    Ms. Eshoo. [continuing] that would bring forward----
    Governor Gilmore. You misunderstood me.
    Ms. Eshoo. [continuing] a broader consensus on an issue 
that is--I mean, this is like trying to get socks on an 
octopus. I'm not suggesting that this is an easy task that was 
presented to the Commission, but to suggest that the majority, 
and in a draft report that we really haven't seen, is the final 
consensus of the Commission that you headed I think blurs the 
case. I don't think that it's fair. That's what I want to 
establish.
    Governor Gilmore. Let me ask you directly. The statute does 
not demand that two-thirds be obtained before a report can come 
forward. Recommendations yes, but we're making it very clear 
that many of the proposals cannot rise to the level of 
recommendation, but the Congress is entitled to what they asked 
for, which is a report.
    Ms. Eshoo. Well, the report can be filed, but any findings 
included must be approved by two-thirds of the vote. That's 
what the legislation said. I mean, we're all taking credit for 
the votes that we passed on the Internet taxation legislation, 
but that's the language that was in it. Now somehow we're 
throwing the language overboard but we want our votes to stand, 
and we're coming in here somehow fully accepting what your 
presence brings forward, and that's not the case.
    Governor Gilmore. I understand, Congresswoman.
    Ms. Eshoo. Are you willing to stipulate to that?
    Governor Gilmore. No.
    Ms. Eshoo. You're not?
    Governor Gilmore. No, because the language of the statute 
makes it very clear that a report will come forward, and we 
have been very fair and open and honest with the----
    Ms. Eshoo. But that's only half. You're saying that the 
legislation, yes, stipulates that a report can be filed, but 
any findings that are included have to be approved by a two-
thirds vote.
    Governor Gilmore. And we have so----
    Ms. Eshoo. The Commission did not do that.
    Governor Gilmore. And we have so designated within the 
report those matters that rose to that level of dignity and 
those that did not. Anything that was a majority report has 
come forward, which I think is the----
    Ms. Eshoo. Let me just, because this is my time, the NGA is 
opposed to your recommendations, and it's been reported that as 
many as 44 Governors support the NGA view. So, we have a mixed 
view. There is a mixed view in the country out there by the 
chief Constitutional officers of States. You know, at the end 
of the day, maybe what the majority brought forward the 
Congress will accept. We haven't arrived there yet, and I don't 
want this record to be blurred to suggest that it is all one 
and that it isn't some of the other.
    Ms. Eshoo. I think that's an unfair view.
    Mr. Tauzin. Gentlelady, your time has expired.
    Governor Gilmore. I must respond, Mr. Chairman, to the 
second point which I haven't gotten to, which is the issue of a 
minority report. It was the sense of the Commission that 
matters that could not obtain even a majority ought not to be 
included in the report of the Commission. However, the 
Commission was extremely liberal in this, or shall I say 
generous in this, by having each Commissioner have three pages 
to summarize his point of view, whether it could command a 
majority or a super majority or not. In fact, the report will 
obtain statements from each of the Commissioners, which is 
basically a whole series of majority, consensus, and minority 
reports all together. In fact, I ruled as chairman that any of 
the Commissioners that wish to get together and submit a so-
called minority report by combining their space could get pages 
and pages and pages. I don't know that they've done that, but 
every minority view is going to be thoroughly represented 
within the final report.
    DR. POWERS: The gentlelady's time has expired. The Chair 
recognizes the gentleman from Ohio, the vice-chair of the 
subcommittee, Mr. Oxley.
    Mr. Oxley. Governor, welcome, and congratulations for a job 
well done.
    Governor Gilmore. Thank you.
    Mr. Oxley. The now infamous excise tax that funded the 
Spanish-American War, the most expensive war in American 
history, continues unabated. If you tax something, you get less 
of it. In this case, I think if you tax something, you get less 
growth, and certainly in this case growth of the Internet.
    It's interesting that the tax that was imposed in 1898 was 
a luxury tax. That was, there were very few people that had 
working telephones, and obviously we've moved now to a 
situation where 97 or 98 percent plus of Americans have 
telephones. Most of them have more than one in their homes. Now 
we have the advent of the Internet and the growth of the 
Internet. I wonder if anybody would consider that to be a 
luxury in today's market. I doubt it. It has become such an 
ubiquitous part of American life that you would be very hard-
pressed to call it a luxury and yet, in fact, Americans are 
still paying that luxury tax. I congratulate you for your 
strong position on that particular issue, and hopefully 
Congress can do something about that.
    The Ohio delegation met with Governor Taft yesterday, and 
he obviously, from his position, has some concerns about the 
recommendations, and I appreciate where he's coming from. You 
indicated in your report and in your testimony that government 
must change, and that is true. How can State governments, in 
your view, adapt to the new realities of the information age, 
specifically in terms of creating or getting enough revenue to 
run State government to provide education and the like, and how 
much time will they have to do that? It seems like a rather 
heavy lift from where I sit, but could you kind of take us 
through what your vision of that might be?
    Governor Gilmore. I think we need to explode the myth that 
somehow the Internet is a threat to services by State and local 
governments. There's no substantial evidence of that. There's 
speculation that perhaps someplace, somewhere that there will 
be such a move of E commerce over that there might be some 
diminution of sales tax revenues, but there's no evidence of 
it, no facts of it. All the facts are to the contrary. As the 
Internet grows and as the Internet sales continue to grow, 
revenues are going up in the States.
    I think we need to, in simply grasping for additional 
sources of old traditional thinking about sales taxes which 
were put on during the depression era, for heaven's sakes, I 
think we need to, in fact, accept this medium and to recognize 
it for what it is, and that is an opportunity for increased 
productivity, for growth of an industry that we have not seen 
before, for the employment of more and more people, for the 
raising of additional revenues, if you will, as a result of the 
growth of this industry. We're seeing more and more people 
shopping, more increased opportunities for commerce, more 
productivity, and as a result of that, revenues are going up, 
not down.
    So, I believe that we should just not grasp onto old ideas 
that are fearful about the idea that revenues may be going down 
when, in fact, the evidence is to the contrary. Revenues are 
going up.
    Mr. Oxley. So you would not necessarily advocate a radical 
change in, at least in the short term, the States tax 
structure, is that correct?
    Governor Gilmore. It's not necessary to attack the sales 
tax generally in order to exempt the sales tax on the Internet. 
It's not necessary to do that. You can exempt sales taxes on 
the Internet without threatening the sales tax within the 
States and the localities. There's no evidence that one is 
going to destroy the other.
    Mr. Oxley. I understand that your Commission dealt, or at 
least talked about the practical realities of tax collections 
in the States over the Internet, of retail business conducted 
over the Internet. In my home State, for example, we have a 
piggyback tax so that counties can levy a piggyback tax on top 
of the State sales tax. It just seems to me it would be so 
difficult in all of those jurisdictions. Our State may treat 
taxation of clothing different than other States. The same kind 
of things with food items or drugs. Is that a very practical 
problem that you also dealt with?
    Governor Gilmore. You've asked a very central question, and 
it was dealt with extensively within the Commission, and 
Governor Leavitt asked for an opportunity to go away after our 
New York meeting and come back in San Francisco in order to 
produce a technological fix on this, a solution that would, in 
fact, be able to solve all of these problems through technology 
and make taxation of the American people on the Internet 
something that could be imposed. Couldn't do it, and I'm not 
sure that it is possible to ever do it.
    This is a dramatic change in the way that government has to 
understand its limitations of its powers in the future. This is 
a confidential conversation going on between buyers and sellers 
across the entire globe. No technology exists to capture all of 
that, and to capture that information in order to produce this 
type of sales tax that we have traditionally seen at the cash 
register when you have your consumer standing right there with 
you. So that is, in fact, a very difficult technological 
difference in this that we have not yet been able to solve, and 
I'm not sure that it's ever going to be solvable.
    Mr. Oxley. Thank you, Governor. Thank you, Mr. Chairman.
    Mr. Tauzin. The gentleman's time has expired. The Chair 
recognizes the gentleman from Texas, Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman, and Governor, again, 
welcome to the Commerce Committee, and I appreciate the work of 
the Commission. Frankly, though, I think the Commission made 
some good recommendations. Some of the easy ones, though, the 
elimination of the 3 percent tax, I think we could all vote for 
that right now, whether it was the Spanish-American War or 
World War I. In fact, a member of the Commerce Committee, 
Representative Klink from Pittsburgh, actually introduced a 
bill that would remove that tax last year sometime, and a 
number of her co-sponsors. I know there's a current piece of 
legislation, Congressman Matsui and someone else, has at the 
Ways and Means, so that's an easy one.
    Extending the moratorium, I have some question because 
again, coming from Texas, and we had an exemption on that 
moratorium, I suggested our legislature in 1999 that we 
eliminate that, but there again, that's a local decision, so I 
would rather, instead of the Congress telling Texas what to do 
or telling Virginia on local taxes, that we let them do that 
and hopefully they'll--the powers that be will do it. I don't 
know about bold and innovative ideas that I heard, you know, 
because looking at the report, I think it made some good 
solutions and some of them that hopefully this Congress will 
pass.
    The concern I have is, again, the State of Texas, I served 
from 1973 to 1993 in the legislature, and I was very well 
trained that some things need to be done in the local States 
and not here in Washington. Ten years before I got there, the 
State of Texas made a decision to have the sales tax as their 
basic revenue source and not an income tax. In fact, in the 
last 5 years, they put a prohibition against the income tax in 
the State constitution, that some of my Republican colleagues 
would like us to do.
    What I see, though, as a Commission, though, is saying that 
we're not going to see a loss of sales tax revenue, and it will 
be the growth, and that's great, but I have a report from the 
University of Tennessee that shows Virginia by the year 2003 
will see a loss of $363 million. The State of Texas will lose 
$1.7 billion. That agrees with my State controller, who is a 
Republican, has said that the State of Texas may lose a billion 
dollars in Internet sales.
    I don't want to tax Internet service, and if I was in the 
legislature now, I would sponsor the bill to eliminate that, 
but I also know that we have some problem with States who 
traditionally use a sales tax as their revenue raiser. We don't 
have an alternative. We have a lottery, and again, we can't add 
another lottery to replace that one $1.7 billion we may lose by 
2003.
    I know it goes back to the nexus rules, and that's what I 
wanted to talk to you about. Did the Commission talk about 
using the 1992 Supreme Court decision that if that using the 
nexus rules for, as we do now for mail order, to use for 
Internet sales? Is that something that the Commission 
discussed?
    Governor Gilmore. The Commission, first of all, I believe 
that Congress suggested that catalog sales and Internet sales 
would be treated similarly, depending--and we should consider 
it as such, and of course, we have. With respect to the nexus 
standards, yes, there was the suggestion of this Commission is 
that the Congress codify nexus rules so that we understand what 
interstate commerce is really about. One thing I think the 
Commission adopted was the notion that interstate commerce is 
the purview of the Congress. I mean, that's obviously not 
stunning, but that nevertheless is what we concluded, that 
interstate commerce has to be addressed by the U.S. Congress 
under the Constitution. We no longer live under the Articles of 
Confederation, but I think----
    Mr. Green. I don't know, maybe from our southern States we 
might have some disagreement there.
    Governor Gilmore. We in Virginia have learned our lesson, 
Congressman.
    Mr. Green. We were at the western end of that war.
    Governor Gilmore. But we do live under a Constitution where 
the Congress is going to make the decision about interstate 
commerce. However, with respect to sales taxes within the 
respective States, I don't think there's any doubt about that, 
and there's no suggestion by anybody on the Commission that we 
ought to be trying to dictate matters intrastate within States. 
They can make those decisions, but when you're dealing with 
matters that touch upon a part and parcel of interstate 
commerce, and in fact, this isn't just interstate commerce. The 
Congress, I think, must recognize that this is really 
different. This isn't just interstate commerce. This is global 
commerce.
    Mr. Green. And I understand that, though, to whatever we do 
within our own country, you know, I can order a book from the 
Cayman Islands, you know, that's not subject to the tax unless 
I happen to voluntarily pay it.
    Let me--my time is almost up, but let me talk about another 
one of the concerns that I have is that the digitized content. 
I understand the weighing, the privacy issue versus the taxing 
and how local government or State government would have to get 
into that, but the suggestion on that is not only to exempt 
taxes on digitized content but also to expand it and the old 
fashioned nondigitized components, which include special taxes 
from books, music, electronic games, magazines, and even 
newspapers. I think it's ironic, again, looking at what my 
local State did, we long ago exempted sales tax on newspapers 
in the State of Texas. Obviously the newspaper lobby was very 
good, but we also liked not to pay sales tax on our news, 
except this last session of legislature extended the sales tax 
on newspapers only to airport facilities, obviously for those 
of us who travel through the State of Texas and want to buy a 
Houston Chronicle, we pay sales tax on it whereas if I go off 
the airport premises. So, I worry that again, we may be 
seeing--we may be dictating to the States on what may be part 
of the sales tax realm, and that decision really should be left 
up to those local States. Again, when you consider, 
particularly where I come from, of $1.7 billion loss.
    Again, before I lost all my time, could you address--you 
said that the Commission decided that the growth in sales would 
actually make up for that loss, and that's not something, at 
least our State controller in Texas or the University of Texas 
agrees with. Did the Commission have that information from the 
University of Tennessee study that--I guess it was released in 
February of this year, but also from State controllers around 
the country?
    Governor Gilmore. I believe we did, and I believe that we 
listened to all ideas, including not only the Tennessee study 
but others, many other studies as well, that indicated that, in 
fact, that we were going to see a continuing growth of revenue 
as a result of all of this.
    I think maybe the central point that I would address your 
question on is this. To the extent that we can maintain the 
growth of revenues which, in fact, is the facts today and at 
the same time give working men and women around this country an 
opportunity to not pay taxes in certain forms of commerce which 
are different from traditional forms, and to grow this 
industry, but more importantly than that, to create a tax cut 
for working men and women across the country, the Commission 
believes that's a responsible policy.
    Mr. Tauzin. The gentleman's time has expired. The Chair 
wants to thank the gentleman, by the way, for supporting the 
repeal of that awful 3 percent excise tax. My mother's a 
Martinez. I'm not sure you know that, and we personally resent 
the notion we're still collecting money for a war against the 
Spanish.
    Mr. Green. If I could respond, I agree, and like I said, 
our colleague on the committee introduced that bill last year, 
and I'm glad we're finally getting Ways and Means to get their 
attention. They don't let us do tax policy here.
    Mr. Tauzin. Maybe come together on this. Thank the 
gentleman. The Chair recognizes Mr. Shimkus for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. I think abstaining is 
kind of like kissing your sister, and to my colleague from 
California, had we had members who had the guts to cast a vote, 
maybe we would have had a majority or the two-thirds majority 
on some of these issues. I kind of find it appalling, a 
dereliction of duty, for the people to be named to a Commission 
that spend a lot of time and then abstain from a vote. I just 
want to--I applaud you bringing out the committee's report in 
such a manner.
    I also have been always interested in taxation and how we 
hide taxes so the public really doesn't have an understanding 
of how much taxes we're paying and where it's going to. So, any 
way we can get to a clear, simplified process so that the 
citizens of our country, regardless of what level. I used to be 
a county treasurer. I used to be a local property tax 
collector. One of the most toughest, yeah, the Matthew of 
Madison County--but people scrutinize their property tax bills. 
They see the rate for the school districts. They see the rate 
for the municipality. They have a clear understanding. At least 
you can explain it. So, any way we can simplify the process and 
get rid of these taxes that are kind of pushing up revenues 
that the public doesn't understand I think is going to be 
helpful.
    I'm most interested in the point seven of the report, 
Governor, that kind of addresses digital divide and the 
proposal to use TANF funds to help, I would assume, purchase 
computers, training for those who are most in need to help 
close the digital divide. Can you, based upon your experiences 
as the Chief Executive Officer of the Commonwealth of Virginia, 
explain how you would propose doing that given the latitude, 
based upon legislation? I'll listen for the response, and then 
if I have time, I have one follow-up on the same issue.
    Governor Gilmore. Let me address several of the points that 
you have raised. No. 1, I believe the abstentions were a 
tactic, in fact, to prevent anyone from getting to the super 
majority. We just need to recognize that's what that was. Even 
on the digital divide proposals, which did rise to a two-thirds 
majority and to be a recommendation of this Commission, many of 
the Commissioners changed their votes in order to make that a 
super majority. Amazingly enough, the three Federal 
representatives did not. They remained in abstention on the 
digital divide proposal, which I find just astounding, 
considering that this is a forward looking approach, I think, 
by the Commission and it rose to a majority.
    On the question of simplification, I think it's very 
important for me to mention to the members who are here, the 
simplification has two sides to that coin. Those that wish to 
impose taxes on the Internet seek simplification because they 
think that that is a way, a path to taxation. Others on the 
Commission, such as myself, support simplification because we 
just think it's in the best interest of the economy, the 
business community, and the men and women who are dealing 
within this new economy. So, we all believe that simplification 
is a good idea and that Congress should address that issue, but 
I want to emphasize that we have different goals in terms of 
that simplification and you should not be fooled by that.
    Finally, the most important thing, as the Governor of a 
State, I think the digital divide, in closing, is very 
important, and I think we have opportunities here to be very 
creative and forward looking to partner with businesses to make 
Internet access available across the board. I have in my own 
legislature this time passed legislation which puts us in a 
position to utilize our libraries to make Internet access 
available, even if poorer communities. In fact, I wanted to go 
further and put them in community centers and use TANF funds.
    We are very hopeful that the Congress will help us and the 
administration will help us to find TANF funds. We also hope 
that we can continue to extend this more and more broadly 
because access to the Internet should be as ubiquitous as the 
telephone, and if we do that, we are not abusing people of 
lesser means. We're helping them. At least if we apply a 
creative and progressive tax proposal such as the one that this 
Commission has come forward with in its majority proposal.
    Mr. Shimkus. And I appreciate that, and I'll just follow up 
with I'm really intrigued by the use of TANF funds, and I would 
like to see, obviously, a computer and Internet access in every 
home in America, and I think that's how you improve education. 
That's how you're going to improve science and technology and 
mathematics, and so I think there's something we can work with.
    Also, as important as lowering the taxation on the Internet 
access, which will be an issue that will help address the most 
needy in this new economy, and I yield back, Mr. Chairman. 
Thank you, Governor.
    Governor Gilmore. Thank you, Congressman.
    Mr. Tauzin. I thank my friend for yielding. The Chair now 
recognizes the gentleman from Maryland, Mr. Wynn, for 5 
minutes.
    Mr. Wynn. Thank you, Mr. Chairman, and thank you, Governor 
Gilmore, for all your hard work on this project. I know it is 
not easy, and there are some very serious issues. I just have a 
couple of quick questions. As a Governor, can you share with us 
the position of the Governor's association with respect to the 
sales tax issue and whether or not we ought to have a uniform 
sales tax regime that will enable States to collect sales tax 
based on these remote sales?
    Governor Gilmore. I think that the--it's clear that the 
National Governor's Association is on record as being more pro 
taxation in this area. There's no doubt about that. They do 
want to impose taxes. Each individual Governor must speak for 
himself, of course, and I think that each Governor is 
responsible for his position, and they should be held 
accountable for their positions, and that's okay with me, but 
NGA has taken its position and feels very strongly about it. 
Was there a second part of that question?
    Mr. Wynn. Well, I just wanted to clarify. Do you agree or 
disagree with the notion of a uniform sales tax regime as the 
only way to address the sales tax issue with respect to 
cyberspace and Internet sales?
    Governor Gilmore. Well, I don't believe that there's any 
necessity of imposing these kinds of taxes on the Internet, 
much less a uniform rate. If you go to simplification, which 
could take the form, I suppose, of one rate across the country, 
or maybe 50 rates or something of that nature, if you could get 
States to do that or localities to do that. Many localities in 
the States are home ruled localities and are not obligated to 
follow State rules in some of these matters, so I think it's 
going to be very difficult to reach that kind of 
simplification.
    I want to repeat what I said a few moments ago, 
Congressman, and that is that simplification can take two 
forms, and Congress ought to understand this clearly. Some 
groups want to simplify, such as NGA, in order to reach 
taxation on the Internet. Some want to simplify simply to 
simplify in order help consumers and to help businesses and to 
help this new economy, and I am one of those.
    Mr. Wynn. Okay, so you don't see that uniformity is 
necessary, is that your bottom line?
    Governor Gilmore. Uniformity in this area?
    Mr. Wynn. For sales tax collection by the States.
    Governor Gilmore. On the Internet?
    Mr. Wynn. On the Internet.
    Governor Gilmore. No, I don't think that it's necessary.
    Mr. Wynn. Okay. Do you then disagree with the Republican 
chairman of NGA, Mr. Leavitt, Governor Leavitt, excuse me, who 
seems to disagree with your report and seems to feel that there 
ought to be a vehicle for States to collect sales tax revenues?
    Governor Gilmore. I do disagree, but I'm highly respectful 
of all the members of the Commission, including Governor 
Leavitt. He is a very strong advocate for his position. We're 
not in any type of emotional thing here. We're in just a 
situation of policy disagreement.
    Mr. Wynn. My State, Maryland and its Governor is concerned 
about a possible loss of as much as 20 percent in the future of 
its sales tax base. I'm concerned, particularly when you have 
many States that don't have an income tax and rely solely on 
the sales tax as to how they can afford to exist in this kind 
of environment, and I'm concerned that the Commission has 
perhaps given short shrift to this concern.
    Governor Gilmore. No, the Commission, in fact, dwelt on 
this concern, as a matter of fact. I think that the fundamental 
question is this. Should government get just everything it can 
get or should it get what it needs. I think that the Commission 
did address the issue of whether or not an exemption on sales 
taxes on the Internet would necessarily lead to a reduction of 
revenue so as to reach that parade of horribles that I think 
has been raised--can't buy fire trucks and do those sorts of 
things. It was very thoroughly discussed, and I don't believe 
that the evidence supports that there will be a reduction in 
revenues. To the contrary, the evidence is that revenues will 
go up as cyber commerce goes up.
    Mr. Wynn. Let me just jump in.
    Governor Gilmore. Yes, sir.
    Mr. Wynn. If there is a study to support that position, 
would you provide it to me, because it sounds as though there's 
a lot of speculation about State revenue losses, and it would 
seem to me that we ought to have something concrete one way or 
the other.
    Let me move on because my time is passing. I'm sure you're 
familiar with the article by David Ignatius in the Washington 
Post where he refers to something called a Gateway giveaway. I 
would expect that you would have some concerns about that. I 
certain do, and don't really understand why a tax break ought 
to be given, even though you actually have a brick and mortar 
operation. Could you explain your position on that?
    Governor Gilmore. A couple of things. I think you're right 
that there's a great deal of speculation as to the horrible 
things that will happen if the people of American are not 
taxed. I think that's not right, and I think that we will 
provide--in fact, all of our information is on the Internet and 
available, and we'll provide you with all the evidence on both 
sides so that as a Congressman you can make up your mind.
    Mr. Wynn. Is there a study on that issue, Governor?
    Governor Gilmore. There are numerous studies on all of 
these issues, but the truth is, that there is very little 
evidence as to what the crystal ball is going to hold in the 
future because we really don't know how this industry is going 
to develop. Mr. Ignatius, I'm acquainted with him, but I think 
he is misinformed in this area. I don't believe that this is 
anything except an effort to provide good tax opportunities and 
breaks for the working men and women of this State, to have for 
the first time in history opportunity to engage in Internet 
commerce.
    Mr. Tauzin. Will the gentleman yield for a second?
    Mr. Wynn. I'd certainly yield, Mr. Chairman.
    Mr. Tauzin. The gentleman was asking for a study. We do 
have one at the desk. It's by Robert Cline and Thomas Neubig of 
Ernst & Young Economics Consulting quantitative analysis, June 
18. I would ask unanimous consent that it be made part of the 
record. The gentleman may have it.
    Mr. Wynn. Certainly, Mr. Chairman, and if there are other 
studies, I think we need to get an authoritative analysis of 
the impact of sales tax or the loss of sales tax revenues on 
the State.
    It seems to be a problem with revenues if you're exempting 
more goods from sales tax, and I can't understand why the 
suggestion is that that's not a problem for the States without 
going through, as you say, this parade of horrors. Certainly my 
Governor feels that there's a potential problem there.
    Governor Gilmore. Congressman, again, we exempt goods and 
services all the time, at the Federal level, the State level, 
everywhere, that we make a policy decision we just don't want 
to tax. We do that all the time. The question, the material 
question is does it necessarily mean that we're going to see 
such a reduction in revenues as to make it impossible for 
States and localities to do what they have to do, and that, I 
think, there's no evidence that it's persuasive in that area.
    Mr. Wynn. My concern is that we not shift the tax burden 
from the State level to the local level, the counties and 
municipalities so that they then have to raise their taxes. 
That's not really relieving the American taxpayer of a tax 
burden. It's just shifting it to a level of government that 
probably has less resources with which to cope. I would like 
you to respond to this Ignatius article and that Gateway 
giveaway, and also to the loophole for digitized content which 
seems to create a difference between a CD that is subject to 
taxation and a digitized version that's transmitted that would 
not be subject to taxation.
    Governor Gilmore. The key question here is whether or not 
we can afford to give the people of America a tax break in the 
area of the Internet, and I think that we can, and that's the 
key. The key is not the idea here that somehow there is some 
effort by business people to enrich in themselves. These 
proposals go to the working men and women who pay the tax, who 
pay the tax, not to the business----
    Mr. Wynn. I'm going to jump in because I'm sure my time is 
about gone, and just say this I don't want to--and I do respect 
your position. I don't want to have an ideological debate about 
tax or not tax. What I was trying to get at is the basis for 
making distinctions in what appear to be similar products and 
providing a tax break. I mean, whether we think taxes are good 
or bad is really not the issue. The question becomes why aren't 
similar items taxed similarly or why shouldn't they be taxed 
similarly, and then we'll get to the issue of whether they 
should be taxed at all.
    Governor Gilmore. Well, again, the issue of whether or not 
you extend taxes into new areas of commerce is central to the 
thinking of the Commission and, in fact, this entire debate. 
With respect to certainly one of the discussions that we had is 
the question of whether or not localities or people in bricks 
and mortar stores draw, in fact, State services and therefore, 
people who go into those stores ought to pay that tax within 
that realm. On the other hand, those services are not 
necessarily drawn in the Internet area, and therefore there 
would be a rational policy basis for making that kind of 
distinction. All this was, of course, discussed in the 
Commission.
    Mr. Tauzin. The gentleman's time has expired.
    Mr. Wynn. Thank you, Mr. Chairman.
    Mr. Tauzin. The Chair thanks the gentleman. The Chair now 
recognizes the gentleman from New York, Mr. Fossella, for 5 
minutes.
    Mr. Fossella. Thank you, Mr. Chairman, and welcome Governor 
Gilmore. I applaud your efforts in the Advisory Commission, and 
I think the American people should know that they have someone 
who is pro economic growth and pro taxpayer who has chaired it, 
so I commend you for your efforts.
    I guess just listening to the debate and watching it from 
afar, I get the sense that there are so many people in 
government who are just fascinated with what's happened in the 
Internet, the revolutionary changes that have come across as a 
result of that medium, and the economic growth continues to 
meet new heights. I guess they're fascinated because they had 
nothing to do with it, and now they want to get their greedy 
mitts over all this money that they see as an opportunity cost, 
when in reality, Governor, and correct me if I'm wrong, the 
National Governor's Association collected $11.3 billion in tax 
surpluses in 1998, despite tax cuts totaling $5.3 billion in 
1998 and $4.9 billion in 1997. An end of year balance for all 
States total $35 billion by the end of 1998. In 1999, the 
States took in $7.5 billion in tax surpluses, despite 
additional tax cuts totaling $7 billion. Sales tax in 
particular continued to increase in both 1998 and 1999, and the 
States collectively took in surpluses of sales tax totaling 
$2.3 billion in 1998 and 1999--$2.2 billion in 1999. Is any of 
that not true, Governor?
    Governor Gilmore. Congressman, it's all true, and I think 
it's goes to the central point here, and that is if there are 
sufficient revenues coming in and growing, as a matter of fact, 
so that States and localities are awash in funds, why is it 
that the people of the United States can't get a tax break in a 
particular area? In fact, they don't pay those taxes now for 
the most part except the use tax obligations, and I might say 
that the States have imposed use taxes, which is a substitute 
for the sales tax, and they're basically asking people to sort 
of mail it in, but a lot of people don't. I think we ought to 
decriminalize the people of the United States and get rid of 
that use tax, but that's not a part of the Commission 
suggestions.
    Mr. Fossella. Well, thank you for that, and confirming what 
to be true. Just a couple of days ago, for example, in New 
York, the State assembly and Senate and the Governor 
compromised on a budget deal that acknowledged that this year 
alone, the State of New York taxpayers have generated a more 
than a billion dollar budget surplus, so I'm befuddled as to 
why those who see budget surpluses across the country now want 
to step in and really stop the economic engine that's driving 
much of this Nation, both here and abroad.
    Let me give you an illustration, Governor, and for those 
who might be interested. Staten Island, who I proudly 
represent, has an 8.25 percent sales tax imposed on clothing, 
State tax and city tax. We lose about a billion dollars in 
economic activity to nearby New Jersey that does not impose a 
sales tax. A couple of years ago, those of us who push for just 
1 week of sales tax free week to give some relief to Staten 
Islanders who wanted to stay on Staten Island, not pay that 
8.25 percent tax. People spoke with their feet. You know, human 
nature and economics 101 worked. In that 1 week alone, sales 
increased by over 100 percent in the stores in Staten Island. I 
think that's a reflection of what the American people want, 
less taxes, not more. If those Governors and those people 
around the country want to look to the Internet to tax, to 
compensate for their high tax structure, I suggest that they 
cut the taxes that already exist and promote economic growth. 
So, if you can just carry that back to your other members and 
your colleagues on the NGA.
    Let me just leave you with a couple of questions, Governor. 
Just curious, I know it takes a lot to tango here. What 
position, if any, did the Clinton-Gore Administration take on 
the Commission, especially with regards to consumer privacy? 
You touched upon it before. Is there any other evidence that an 
imposition of sales tax on the Internet will stunt the growth 
of E commerce, and finally, the international tariffs and taxes 
on E commerce present a threat to U.S. global competitiveness?
    Governor Gilmore. The three Clinton-Gore Administration 
representatives joined the pro-tax block and never deviated. I 
think if they were prepared to work with us in order to try to 
craft a super consensus on a pro-taxpayer position, we would 
have known it. There was never any evidence of that. Even in 
the closing days when we were reaching for further discussions 
in order to try to bring them around, they never came, and 
there was an abstention throughout on any type of pro-taxpayer 
positions that were taken. Amazingly enough, even on the 
privacy position, an abstention, which I thought was 
astounding.
    Mr. Fossella. And as much as that this is a global theater 
we're playing in these days, the international tariffs or taxes 
on E commerce present a threat to U.S. global competitiveness?
    Governor Gilmore. It produced an opportunity for us. We are 
dominant in the world today because of the growth of this 
industry. It is a big advantage to the United States, and I 
think we ought--the Commission believed that we ought to 
continue to find ways to eliminate tariffs in order to be able 
to provide the greatest possible opportunities to the people of 
the United States and of the world. I know the European union 
would like to impose these taxes. The European union are 
experts in imposing taxes, but Americans, I think, are more 
forward looking, and I think that we will try to find ways 
through international negotiations to try to eliminate these 
taxes, especially on E commerce originating in the United 
States.
    Mr. Tauzin. Then gentleman has just 30 seconds left. Would 
he like to----
    Mr. Fossella. I just have one more question, then I yield, 
if I can, Mr. Chairman. That is, I think it's important, if you 
can, Governor. You talked about tax simplification as almost a 
code word. If you can elaborate on that slightly and whether 
it's--how it's sort of correlated to the Quill decision of the 
Supreme Court, and you brought up how it's a code word to try 
to merely increase taxes when in reality--Okay.
    Governor Gilmore. The law today is that remote sellers 
cannot be required to collect those taxes under the Quill 
decision. I think that the pro-tax folks believe that if we can 
go to a simplification type of approach, then you can find a 
way to overpower that court case and, in fact, impose those 
taxes. So, we have to be careful because simplification has 
become a code word for increasing taxes. I don't think it has 
to be that way, and the folks who are not for taxation also 
believe that there should be simplification, but not for the 
purpose of trying to overturn Quill or to impose a tax regime, 
but just simply because it's good for the businesses, 
entrepreneurs and consuming men and women of this country.
    Mr. Tauzin. The Chair is now faced with two unanimous 
consent requests that I want to try to honor. Mr. Wynn has one 
and you had one first. If Mr. Wynn will cooperate with me, let 
me take care of this one, then I'll recognize----
    Mr. Fossella. Mr. Chairman, if I might just yield 30 
seconds----
    Mr. Tauzin. The gentleman has unanimous consent to yield 30 
seconds of time to one of the subcommittee chairman who is not 
a member of the subcommittee but wishes to address the point 
that he is the author of with reference to Internet access 
taxes, I think. Mr. Upton, without objection, it is so ordered.
    Mr. Upton. Well, thank you very much. I appreciate the 
gentleman's indulgence. I just want to say, and I appreciate 
your comments this morning, your leadership on this issue. I 
would note that, though I'm a taxpayer and a voter in Michigan, 
I'm also a taxpayer in Virginia, so your efforts to lower 
property taxes would be good, continued efforts to do that.
    Just one thing. As I read and sign all of my legislative 
mail, there has not been an issue that has generated more 
interest back home than the possibility of the FCC allowing for 
access fees or charges to Internet use. I've introduced 
legislation that's bipartisan. Many of the members of this 
committee and subcommittee, in fact, are co-sponsors, and I 
appreciate your comments as part of your statement in support 
of my bill that would block that FCC allowed access charge, and 
I am working with Chairman Tauzin and Bliley to get that bill 
moving, not only in the House but also the Senate. I yield back 
the balance of my time.
    Mr. Tauzin. I thank the gentleman for his statement. The 
Chair would recognize the gentleman from Maryland for a UC 
request.
    Mr. Wynn. Thank you, Mr. Chairman. Earlier in the 
proceeding, you entered into the record a report on the subject 
of Internet taxation and impact on the sales tax entitled The 
Sky is Not Falling, why State and local revenues were not 
significantly impacted by the Internet in 1998. I just wanted 
to flag that document and note for the record that this study 
was prepared for the E commerce coalition of broad based 
national coalition dedicated to providing sound policy 
information on taxation of electronic commerce. The coalition 
members include America Online, Incorporated and its consulting 
Cisco Systems, First Data Corporation, Intuit, Microsoft 
Corporation, Time-Warner, Inc. and WalMart Stores.
    Mr. Tauzin. Without objection, that is so noted.
    Mr. Wynn. Thank you, Mr. Chairman.
    Mr. Tauzin. The Chair now recognizes the gentleman from 
Ohio, Mr. Sawyer, for 5 minutes.
    Mr. Sawyer. Thank you, Mr. Chairman, and Governor, thank 
you for your testimony here today and all of the hard work by 
you and your colleagues that preceded it and for the additional 
comments that you've brought here today.
    We've touched briefly on several occasions on the 
international consequences of the work of the Commission and 
the policy decisions that remain in front of us. In fact, 
points 10 and 11 of your testimony deal directly with that. 
They speak in policy terms, large principles. I was wondering 
if you could share with the members of the committee the 
specifics of--let me give you one example. We're talking about 
taxation in terms of imposed taxation, but at the same time, 
we're talking about trying to create a neutrality with regard 
to other forms of taxation--the European Union, for example, 
with the widespread use of embedded taxes through the value 
added tax. Could you explain to us how the principles that 
you're talking about, particularly in point 11, would apply in 
the case of embedded taxes like the European VAT?
    Governor Gilmore. It's a complicated question. Let me see. 
With respect to international tax and tariff issues, there is a 
sense that we would like to see, according to the suggestions 
of the Commission, to the greatest extent possible, not having 
taxes and tariffs be charged on Internet goods, services, and 
so ons that are being transferred from country to country. To 
the greatest extent possible, we would like to free the 
Internet from tariffs, and that is I think the point the 
Commission has made.
    Mr. Sawyer. I understand the--I fully understand the 
policy. It's the one that we, this committee, and others have 
spoken to internally within the United States, but almost all 
of our taxation, at least in terms of the way in which it deals 
with goods and services that might be either transmitted over 
the net or in fact, commerce that takes place through the net, 
even if it's in real goods and services, those largely involve 
super-imposed taxation.
    Governor Gilmore. VAT taxes, for example?
    Mr. Sawyer. Pardon me?
    Governor Gilmore. VAT taxes you mean?
    Mr. Sawyer. Oh, no, no, no, sales taxes, as opposed to VAT 
taxes, whose costs are embedded throughout the process of 
getting it from raw material to the point of sale. How do you 
desegregate all of that in ways that would carry out the 
principle that you've clearly annunciated here?
    Governor Gilmore. I think the Commission felt that to the 
greatest extent possible, we ought not to be opposing 
additional tariffs, either on goods coming in or going out, 
digital goods, transmissions particularly, with respect to 
keeping that free flow of that kind of communication back and 
forth.
    Mr. Sawyer. Did the Commission have any direct conversation 
with representatives of the European Union or other major 
global taxation regimes that----
    Governor Gilmore. Yes, there were, in fact, representatives 
from the European Union who came forward to the Commission and 
addressed their point of view. We also had a representative of 
the International Trade representative on the Commission.
    Mr. Sawyer. Would it be possible to share written materials 
regarding those conversations so that we might better 
understand how the policies or the principles that you've 
annunciated here would apply in the real world?
    Governor Gilmore. Certainly, and it gives me the 
opportunity once again to state that this is a year in which we 
have seen everything. We have heard everything. We have 
listened to every one, and all of it has been made very, very 
public, both on the Internet and otherwise. I'll be happy to 
pick out these materials and send them to you directly.
    Mr. Sawyer. I very much appreciate that. Thank you for your 
time today on that. Let me ask one further question. In the 
Ignatius article, he points out the notion that some items, for 
example, books, music, electronic games, magazines and 
software, that can be digitized. There's a clear intent to 
avoid taxation on that, and in order to create a level playing 
field, he suggests that you are proposing a migration on the 
real world brick and mortar taxation on any goods of that kind 
that could be digitized in order to create a level playing 
field. Does he accurately represent the recommendations of the 
Commission with regard to that?
    Governor Gilmore. I think that Mr. Ignatius came at this 
from a point of view, and I don't have the article in front of 
me. I just remember it when I saw it. I think his point of view 
was gee, this is some type of grab. I think that's what----
    Mr. Sawyer. I'm not arguing that.
    Governor Gilmore. You're not arguing that.
    Mr. Sawyer. I'm not arguing.
    Governor Gilmore. I believe that----
    Mr. Sawyer. Mr. Chairman, I realize that my time has run 
out. If I might have unanimous consent just to read a very 
brief paragraph.
    Mr. Tauzin. Without objection, the gentleman may have that.
    Mr. Sawyer. Because you don't have it in front of you, and 
that's not fair. A new loophole to exempt from taxes all 
digitized content, things that can be sent electronically, such 
as music, E books, online games, and software, and their old 
fashioned, nondigitized counterparts. In other words, the 
Commission would create a special tax exemption for books, 
music, electronic games, magazines and software sold in the 
brick and mortar world. Is that the intent of the Commission?
    Governor Gilmore. The Commission, in fact, made that a part 
of its report, and that is correct. I think that certainly from 
many of the members' points of view it is just this. If we can 
find an opportunity to extend a tax break to the people of the 
United States in an area that does not then impinge upon the 
necessary revenues of the States or localities to do their 
jobs, then we ought to extend those tax breaks. I mean, you can 
always, of course, take the position that government can take 
every dime that it can get its hands on and spend it, but----
    Mr. Sawyer. Obviously I don't take that position.
    Governor Gilmore. Obviously we don't take that position. I 
think the approach is instead, is it possible to extend further 
benefits by way of tax breaks to the people of the United 
States, and I think the Commission came down and concluded that 
if it is possible to do that, it would be good policy.
    Mr. Sawyer. I understand the position you've taken. Thank 
you very much, Governor.
    Governor Gilmore. Thank you.
    Mr. Tauzin. Thank the gentleman. The Chair is now pleased 
to recognize the ever patient, ever cheerful, most lovely, the 
gentlelady from Wyoming, Ms. Cubin.
    Ms. Cubin. Thank you, Mr.----
    Mr. Tauzin. You know what I'm doing here. I'm trying to 
make up for calling on you so late here, Ms. Cubin.
    Ms. Cubin. It's okay. I've enjoyed the discourse. Welcome 
to your, Governor Gilmore. I, too, am a property owner in 
Virginia and appreciate your attempt to reduce property taxes.
    I must express my disdain for those members of the 
Commission who abstained instead of voting one way or another. 
I can't help but wonder if they were too cowardly to show that 
they really wanted to increase taxes or if they were too 
uninformed to make a decision or if they simply were unprepared 
to do that, and heaven forbid that it could possibly be a 
political thing that they did in abstaining, but I do want to 
thank you for the work that you did and for the intellectual 
integrity that you demonstrated and that other members of the 
Commission demonstrated as well.
    I have but one question because I know that you really do 
need to get going. One of the recommendations that the 
Commission's report encourages is for localities to simplify 
their sales tax and use taxes in order to create fairness and 
parity in Internet sales tax and the traditional brick and 
mortar sales taxes. I just wondered if you have any idea how 
close or if States and localities are moving in that direction 
or if this is yet unchartered territory?
    Governor Gilmore. No. I think that there has not been a 
track record or simplification. This Commission recognized that 
point and suggested that there ought to be incentives for, in 
fact, simplifications, but I want to point out that there may 
be legal impediments to simplification. Again, as I said, many 
localities exist in home rule type of environments where they 
have the authority to make these kinds of decisions instead of 
taking orders from their State governments.
    Constitutional provisions provide, make it very difficult 
for simplification as well. The sense of the Commission of 
simplification is a good idea, though, but not necessarily, and 
again, we fought pretty hard as to whether or not there was 
going to be a statement that simplification should 
automatically lead to taxes. That was fought out in this 
Commission and rejected. Simplification is a good idea, but not 
necessarily as a path to further taxation.
    Ms. Cubin. Yes, I certainly would agree with that. I know 
also that even within States, different counties have different 
levels of sales tax and different ways of collecting them. 
Thank you very much, and thank you for your work.
    Governor Gilmore. Thank you, Congresswoman. That's why it's 
going to be very difficult, I think, to create a technological 
method without invading everybody's private information, which 
I think that the Commission doesn't think's a good idea.
    Ms. Cubin. Thank you, Governor.
    Mr. Tauzin. Next, the gentlelady from Missouri. Ms. 
McCarthy is recognized for 5 minutes.
    Ms. McCarthy. Thank you very much, Mr. Chairman. I 
apologize for not being here for the full testimony. Governor, 
I very much welcome your input today, and I wanted to pursue a 
conversation I had yesterday with Bill Gates in a meeting, who 
was very kind to come to the Capitol and meet with many of us 
concerned about many issues regarding the Internet but in 
particular, the taxation of the Internet.
    His comment to me was that we should encourage States to 
collect the use tax, and that would address the matter. You are 
a Governor. You know how difficult it is for States to collect 
the use taxes, and in a State like my own, Missouri, are 
voluntary. Consumers are supposed to, when they send their 
taxes in, also send in the taxes they owe on those purchases 
made by catalogs, historically, or out of State sales in some 
form or another, particularly if there is nexus in the State.
    I just now got a glance at resolution No. 5 in your report. 
So, I wondered if you'd please comment on the recommendation of 
resolution No. 5 that prohibits sales and use tax on remote 
sales of goods and services to individual consumers and 
prohibits taxation of sales of digitized goods and products 
purchased by individual consumers electronically over the 
Internet. How is a State then to cope with the loss of this use 
tax, which for Missouri would be about $395 million annually, 
if I'm understanding the underlining here by my staff 
correctly, would prohibit the collection of it or the 
application of it for sale of goods and services to individual 
consumers.
    Governor Gilmore. Again, I'm not sure what you're reading 
from because the discussion of the use tax is not going to be a 
part of the final report. I wanted to actually have a 
discussion of the use tax but didn't put it forward at the end. 
However, I do have made, addressed that in my separate 
proposal, and I think I'm the only one that did, in my separate 
filing that I'm doing within this report.
    Virginia has a bi-annual budget of $48 billion, and I have 
felt that the right policy would be to eliminate the use tax 
for people--for people. So, you have to compare apples and 
oranges here. The use tax, of course, can also be applied 
business to business, which is the far bulk of what E commerce 
is today. I'm in this to try to help working men and women of 
America, so I believe that we probably ought to eliminate the 
use tax, business to consumer.
    In Virginia, our bi-annual business is $48 billion. I've 
asked our treasury how much money are we collecting every year 
business to consumer use tax, and the answer is less than a 
million dollars a year, out of $48 billion over a 2-year 
budget. So, it isn't much money that the States would be doing 
without, frankly, to eliminate the tax, business to consumer, 
on the use tax. I might say that it is very difficult to 
collect. There is no good systemic approach. There is no 
technological approach that doesn't invade people's privacies. 
People don't pay the tax to their States, and they're all 
criminals. I think it's time to de-criminalize the people of 
the United States and to eliminate this business to consumer 
use tax, but that was not addressed in this Commission report.
    Ms. McCarthy. I think what I am reading from, in fact, is 
your own personal comments submitted, so it was not part of 
whatever----
    Governor Gilmore. Well, I stand by that. It's going to be 
in the report, but it's my individual submission. I say again, 
that every Commissioner has an opportunity to file one of those 
with their own personal views.
    Ms. McCarthy. Well, I understand your thoughts on the 
current application of the use tax in the States. It is not 
well collected or remitted. I don't have the Missouri numbers 
at hand, but I know the potential for Missouri is $395 million 
if, in fact, it were remitted and collected.
    Governor Gilmore. And that's all taxes--business to 
business and business to consumer, probably because that's----
    Ms. McCarthy. Yes, I think that's it.
    Governor Gilmore. That's probably everything.
    Ms. McCarthy. And in Virginia, it would be about $364 
million. I'm raising this because in the area of taxation, I am 
very concerned about the mom and pop retailers who keep our 
main streets and our communities thriving in Virginia and 
Missouri and all over this country. There didn't seem to me in 
the context of your Commission a presence of the brick and 
mortar businesses that are small mom and pop retailers 
established in our communities all across the country, and they 
do collect and remit sales tax to the States, and that 
collection, remittance of State and city and county sales taxes 
is the lifeblood of those governing bodies, and you are well of 
this as Governor. It's something that they must, in fact, 
depend upon. Do you recommend in your Commission report that 
absent those mom and pop retailers, who will, unless they find 
out some new creative way to make their sales other than 
locally on main street, you know, where they're paying property 
taxes for the schools and, you know, they're remitting to the 
State the employment taxes and so forth, if they go away go 
under or go on to the net, what taxing tools you are going to 
offer States, cities and counties so that they may continue to 
do the job they must do?
    Governor Gilmore. Let me answer you most directly. No. 1, 
everybody was represented on this Commission. I mean, every 
point of view was represented on this Commission, and everybody 
had a chance to have a representative strongly take their 
position and furthermore, everybody had a chance to come before 
this Commission, no matter whether they agree with any 
particular member or not.
    Second of all, I think that one of the great myths that is 
put out is that is mom and pop small businesses are going to be 
hurt by a no tax proposal and therefore we have to impose taxes 
on the customers, and that's just nonsense. The fact of the 
matter is that small business, for the very first time in 
history, have a chance to go beyond the front door of their 
store in that limited marketplace and now extend themselves out 
over the net and compete with the big businesses and capital 
intensive organizations that can afford to do that. So really, 
this is not a proposal that is bad for mom and pop businesses. 
It is, in fact, good for mom and pop businesses who have an 
opportunity to trade in that way.
    Finally, the most important point is this. If we go ahead 
and put tax obligations on to the mom and pop stores, it's 
harder for them because they're smaller, to collect and to 
remit and to keep track and to file, and that is the goal here. 
The goal here by elimination of those taxes--in fact, it's 
going to be a big, super benefit to mom and pop stores.
    Ms. McCarthy. I would like to go back to my conversation 
with Mr. Gates and disagree with you. He's quite convinced that 
with the technology at hand, collecting the use tax is going to 
be relatively easy and painless for anyone--individual working 
out of their home with an Internet or a mom and pop store. I 
think he's got more wisdom--I know he has more wisdom than I do 
on the technology, but I've got to think, even from my limited 
experience as a visiting Silicon Valley a few times that 
there's somebody somewhere there 23 years old that will stay up 
all night and come up with a program needed to do this.
    I think this debate started in this very subcommittee 
because I raised the issues of tax fairness and I remember it 
well talking to Mr. Cox that day when he first presented the 
bill and saying you know, have you talked to the States, the 
Governors, the counties, et cetera, because the sales tax is 
their life blood. They've got a whole lot of commitments to the 
people they serve locally to carry out things we don't expect 
to do at the Federal level, and as a result, your Commission 
was created, and it's a very good Commission and a very good 
vehicle and a very thoughtful process and 2 years of hard work, 
but I don't see an answer yet, and I hope the report will 
address it thoughtfully that says here's what we're going to 
do. We're going to give the States alternative taxing 
mechanisms or we're going to somehow try to level this playing 
field. I lived through, as a State legislature, the last time 
we shut down main streets all over America when we came in and 
provided the tax incentives for the shopping malls and the 
WalMarts to build right outside of town, and I watched those 
hardware stores close and those little dress shops all up and 
down main streets all over Missouri, and I don't want to go 
back there.
    Governor Gilmore. Right, I agree, and that's in fact the 
point of the Commission, as a matter of fact. For the first 
time in history, the small guys get a chance to compete on an 
equal basis with the big guys. We finally have an opportunity 
to do that if we just don't blow this. By the way, nobody is 
suggesting the elimination of the sales tax anywhere. This is a 
question of whether or not sales tax is extended into a new and 
similar form of commerce and whether that will have dire 
consequences, and the Commission just didn't find them.
    Ms. McCarthy. Mr. Chairman, I hope that our subcommittee 
grapples with this particular issue a little bit further in the 
future. I don't want to delay the committee's work today, but I 
have a feeling when we visit again on this in the future and we 
revisit your thoughts on it, we'll have better information to 
know just where we're going. I would hope that's what the 
Commission would have provided us, but maybe we as a 
subcommittee, Mr. Chairman, must resolve that on our own. Thank 
you.
    Mr. Tauzin. Thank the gentlelady. The Chair would like to 
observe that he, too, can comment as to who has more wisdom, 
you or Bill Gates, but at least you're not in the middle of a 
big lawsuit.
    The Chair recognizes the gentleman from California, Mr. 
Cox.
    Mr. Cox. Governor Gilmore, I think the topic currently 
under discussion is worth pursuing. It really did animate our 
discussions at the time that Ron Wyden and I were first 
pioneering the Internet Tax Freedom Act. I will point out that 
a handful of Governors, our Governor in California, Pete 
Wilson, and first Governor Allen and then Governor Gilmore in 
Virginia, were among just a handful of that Nation's Governors 
early on to see the wisdom of permanently banning 
discriminatory taxes on the Internet. That's really what we're 
talking about, I think.
    The Internet Tax Freedom Act, which created the Commission 
and also banned these taxes, as you point out, didn't come 
close to banning sales taxes in America. To the contrary. It's 
my understanding, and I want to ask you about the Commission's 
findings on this point, not just your formerly voted upon 
findings but the research work that you did preparatory to 
making your recommendations. It's my understanding that tax 
collections to State and local governments from the sales tax 
during the period of time that the Internet economy and E 
commerce have exploded have gone up, not down. That, in fact, 
we have record sales tax collections. That's our experience I 
know in California, and I wonder if that's what you found in 
looking at this as a national problem.
    Governor Gilmore. That is correct, Congressman Cox. The 
growth of the industry is different. It's exciting. It's an 
opportunity. Revenues, in fact, are going up, not down. Now, my 
goal in life is to try to have the people of the United States 
share in this, and that means that if we could give them an 
opportunity to do business and to have their opportunity as 
individual working men and women to participate in the Internet 
without taxes, it's a benefit to the people of the United 
States and we should be loath to pass it up.
    Mr. Cox. How about this issue of businesses on Main Street 
being put at a disadvantage by the Internet? The premise of 
that argument is that we've got the bricks and mortar economy 
over here. We've got the new cyberspace economy over here, and 
the new economy is eating up the old one. My experience, again, 
in California which may not be typical, which is why I want to 
address this to you as the chairman of this national 
Commission, is that we have rather rapidly over the last few 
years moved away from that stark division of E commerce on the 
one hand, bricks and mortar on the other, to what might be 
called bricks and clicks, that people with long established 
retail businesses are taking full advantage of E commerce, that 
people with long established wholesale businesses are starting 
to conduct their business to business work that way. It is not 
a displacement of one with the other, but rather Main Street is 
now reaching new markets that they couldn't reach before. 
They're not limited to the people who live within a three mile 
radius of their storefront. They can reach people in Japan or 
in Finland. Is that what you have seen?
    Governor Gilmore. Yes. We have, of course, an example we 
use over and over again of a company that deals in agriculture, 
sells peanuts basically, at a local place off of the road in a 
remote area. Now they're selling these gourmet peanuts to the 
entire world. They have opened up their market, and they have 
opportunities. Clicks and mortar is going to be more and more 
the rule, and it's an opportunity, not a problem, for small 
business.
    Mr. Cox. Governor Gilmore, you've been very kind to take my 
additional questions. The Chairman was kind enough to yield me 
the opening round, and I want to yield the entirety of the 
balance of my time in the next round as well to the Chairman.
    Mr. Tauzin. I thank the gentleman. Governor Gilmore, you 
pointed out in your report to us that taxation of telephones, 
which are one of the carriers of the Internet, does amount to a 
tax on the Internet, in effect. I was privileged to read a 
report not long ago--I think I sent you a copy--by Progress and 
Freedom Foundation that indicates that taxes on telephones have 
gone up as much as 62 percent in the last 12 years, indicating 
an extraordinary explosion of taxes that directly impact the 
Internet. In fact, there are some jurisdictions in America 
where there are more taxes on telephone usage in America than 
there is on tobacco, which is a rather extraordinary thought in 
a free speech society.
    Is it your personal view, and did the Commission in 
whatever majority, super majority, whatever form it took, did 
the Commission feel, as I do, that this load of taxes on the 
carriers of the Internet, amount to a form of Internet taxation 
that we ought to seriously look at reducing?
    Governor Gilmore. Yes. I think that the Commission, 
certainly on its 3 percent excise tax, addressed that issue and 
pointed out that these kinds of burdens on access weigh 
particularly heavy on people who have lesser means, who 
sometimes can't get telephone or they have a hard time paying 
for the extra dedicated line for the Internet because of the 
additional taxes. So, any reduction in tax is a liberation to 
the people of the United States for the use of the Internet.
    Mr. Tauzin. Now, I think I know the answer to this because 
you and I talked about it, but as I understand, the Commission 
did not get into the question of whether or not there is an 
unequal tax treatment, depending upon what Internet service 
people are buying. That is, if I'm buying my service through a 
cable company or I happen to buy it through a satellite or 
terrestrial wireless company, I might pay less taxes on that 
Internet service because those carriers pay less taxes than the 
telephone company is required to collect from me and pay to 
various local and State and Federal Governments, isn't that 
correct?
    Governor Gilmore. Yes, but I think again, the Commission 
did not fully address the alternative forms, other than to 
point out that to the greatest extent possible, we should 
reduce costs so that more people have access to the Internet.
    Mr. Tauzin. And you did, indeed, focus on the question of 
access to the Internet, that apparently you spent a lot of time 
thinking and talking about generally about the importance of 
this phenomena, the Internet, to the success of families, of 
working men and women and their children and their families, in 
this new society. You put a great emphasis on making sure 
everyone had access to it. I want to, first of all, commend one 
of your communities in Virginia, Blacksburg, Virginia, which 
was I believe the first community in America which decided to 
become a totally Internet wired up town, all connected to the 
University of Virginia Tech's intranet system, something we're 
trying to replicate in my own State now.
    The notion of everyone connected, everyone a part of the 
Internet is obviously pretty strong in your report. I wanted to 
take it the next step. We're beginning to see the deployment 
and the rapid expansion of Internet capabilities under high 
speed of broad band Internet services, and I wonder if the 
Commission spent any time at all differentiating between the 
old Internet services and the new broadband services that are 
going to make a lot of difference in terms of whether the small 
mom and pop business will be able to compete in the high speed, 
broad band world, or did you not even get into those issues?
    Governor Gilmore. No, I think we did not address those 
issues, Mr. Chairman.
    Mr. Tauzin. If I can make sort of a point there that I 
would hope, as you go forward and finalized your own comments 
on this, that the point you made with Mr. Cox about the 
Internet becoming a vehicle by which small, competitive 
businesses can become competitive with the biggest businesses 
anywhere in the world because of the Internet, that point 
becomes almost moot in a broad band world, where if the only 
service that small community has and the only service that 
small business has, is the old Internet, the old simple 
Internet, rather than the broad band, high speed Internet 
that's going to make literally an entirely new world of 
economic opportunity available to them. It is going to make a 
big difference as to whether or not--whether we tax or not tax 
those small businesses have the opportunities you discussed 
with Mr. McCarthy, and I just want to put on the record, 
because it's an issue that I'm very close to and pushing very 
hard in this Congress, that access to broad band services will 
perhaps be even more important than access to the old Internet 
services. I would just like to highlight that in connection 
with the emphasis you have put on the need to have access to 
all of the folks in your community.
    The gentleman's time has expired. The Chair will now 
recognize the gentlelady, the----
    Governor Gilmore. Mr. Chairman, may I ask for a 3-minute 
recess, please?
    Mr. Tauzin. Yes. I'm sorry. The Chair will declare a 3-
minute recess, and we'll return in 3 minutes.
    Governor Gilmore. Thank you.
    [Brief recess.]
    Mr. Tauzin. The Chair will declare this subcommittee back 
in session.
    Governor Gilmore. Mr. Chairman, thank you. There are some 
issues the Internet can't address. I appreciate that.
    Mr. Tauzin. Well, you were signing bills, I know, and we 
wanted to accommodate you.
    We now recognize the gentlelady, Ms. Wilson, from New 
Mexico.
    Ms. Wilson. Thank you, Mr. Chairman. Governor Gilmore, I 
found your testimony to be refreshing and your answers to 
questions to be refreshing in looking to the new economy and 
the benefits that it brings to America, particularly the 
statement that the Internet changes everything, including 
government. It's certainly changing things around here. I don't 
know if this hearing is streaming across the Internet, but they 
often do from the Commerce Committee, and I'm now finding in my 
office that I get more electronic mail than I get snail mail, 
that we're doing more constituent services on the Internet and 
providing more information on the Internet to constituents.
    We've gone from vote.com to direct input on pending votes 
from my constituents on our web site, and it is completely 
bilingual so that you can toggle back and forth between English 
and Spanish and provide that kind of direct constituent service 
to people.
    I also take your point about getting beyond the front door 
for little companies, whether it's Bueno Foods for those of you 
who just can't yet get your green chili fix on the east coast, 
you can log on and buy it directly on the Internet.
    I have a couple of questions for you based on your 
experience as a Governor. You talked in your testimony about 
the Virginia Diner, and you talked briefly about it in the 
answer to someone else's question. When you talk to folks in 
Wakefield, Virginia about the success of VaDiner.com and the 
can of peanuts that they may sell for $1, when you go down the 
street to the Stuckey's and talk to them about the fact that 
they have to charge $1.06 or $1.05 for that same can of 
peanuts, how do you explain it to the folks who aren't yet part 
of that new economy? How do you answer the fairness question?
    Governor Gilmore. Well, I think that you answer it this 
way. I think you ask yourself the question, is there an 
opportunity, in fact, for Stuckey's to go online, for them to 
open up and do something entirely different and to, in fact, go 
online and become sellers themselves, and of course the answer 
is that there are. From the government's point of view, you 
have an opportunity here for new jobs to be created in the 
Internet economy. The Virginia Diner example, for example, 
there are new people that are now being employed. They're going 
to be paying income taxes, so those kinds of funds are there.
    In terms of a fairness issue, the question is really what's 
fair to the people of the United States. Isn't there an 
opportunity here for them to make purchases and to have those 
changes to do that without paying taxes?
    Ms. Wilson. I guess the only other question that I'll ask 
you and then I'll yield the balance of my time is we've seen 
explosive growth in the Internet, but it's still a fairly small 
percentage of our economy and most of the Internet sales is 
still business to business as opposed to business to consumer. 
If you look at where we're going to be 5 or 10 or 15 years from 
now, it may be a much more significant percentage of our 
economy. How, as a Governor of a State do you see your revenue 
streams changing from a way--you have sales tax as well as 
income tax.
    Governor Gilmore. We do.
    Ms. Wilson. I understand you may not have car tax anymore, 
the property taxes. How do you see your income streams 
changing, and how, if you were the Governor 10 or 15 years from 
now, would it look different than it is today?
    Governor Gilmore. I think nobody has a crystal ball, so 
it's impossible to speculate. There are many people today that 
are asserting that the growth of E commerce is going to destroy 
other things around it, and there just isn't the facts to 
sustain that or to substantiate that. The question is, is the 
sales tax going to be diminished? There's no evidence that it 
is. Is there an opportunity to reach for more revenues? 
Certainly, and you could perhaps reach into that area and get 
additional revenues, but the question is what revenues do you 
need and are they going to be diminished? Right now the 
evidence is not there to show that the sales tax is going to be 
diminished in Virginia or anywhere else in America.
    Ms. Wilson. Thank you, Mr. Chairman. I yield my time.
    Mr. Tauzin. The gentlelady's time is expired. The gentleman 
from Mississippi, Mr. Pickering, is recognized for 5 minutes.
    Mr. Pickering. Mr. Chairman, thank you. Governor Gilmore, 
my question or line of questions starts with the moratorium 
under your recommendation is extended 5 years to October, 2006, 
is that correct?
    Governor Gilmore. I believe that that is, in fact, what the 
proposal will be, yes, sir.
    Mr. Pickering. Do you think that there's anytime during 
that process or at the end of that moratorium, should we re-
assess, should we look at how the conditions, how the market, 
how the technology, is affecting commerce, both main street and 
electronically, to make a decision at some point in the future 
whether there should be some type of uniform tax, or should the 
Internet effort come under a tax. Is it your position that it 
should be tax free forever?
    Governor Gilmore. While I believe that was probably the 
best policy, we debated and questioned both privately and also 
in public among small groups and larger groups as to what the 
proper approach ought to be. There are many people that believe 
that the moratorium ought to be permanent. I believe that this 
proposal will come forward and suggest and 5 year extension. 
Then of course, it would be very reasonable at the end of that 
5 years to take a second look at see where we are.
    Mr. Pickering. You had mentioned in your other comments 
about a business to consumer use tax and doing away with that. 
What are the consequences or what would the consequences of 
doing away with the business to consumer? We're seeing great 
advantage of business to business E commerce. If you did do 
away with the business to consumer use tax, what are those 
ramifications?
    Governor Gilmore. None, except for the fact that individual 
working people wouldn't have to necessarily pay the use tax, 
and if they don't think to do it or don't do it because it's 
unenforceable, they're not criminals anymore. There's no reason 
why a State or the United States couldn't adopt a policy that 
says that you still do have the use tax on business to 
business, which at this point is the biggest bulk of the 
Internet commerce that is going on.
    You see, the practical reason is this. There are two things 
that I want to say in response to this. The first is that you 
can technically collect a business to business use tax. You can 
do that. By routine audits and that type of approach, you can 
do that. You technically can't collect the use tax over the 
Internet because the privacy and the technological ability to 
do it just isn't there, just isn't there.
    The second point is this. My goal is to do something good 
for the people of the United States, for the citizens of the 
United States, not necessarily just the businesses of the 
United States, although certainly commerce and opportunities 
for people to grow as the American economy grows, but this is a 
chance for people to have a chance to have--not to have to pay 
that use tax. So, my emphasis, again, there wasn't much 
discussion of the use tax in this Commission. I would like to 
have raised it, but just declined to do that because I thought 
that the other approaches that we had were so material and so 
helpful to the Congress that we would address the use--I would 
have wanted to address the use tax individually myself, and 
that's what I did.
    My goal here would be to eliminate the use tax from 
business to consumer because it helps people, especially people 
of modest means.
    Mr. Pickering. Has anyone ever quantified or tried to 
quantify the business to consumer use tax?
    Governor Gilmore. In Virginia I did. As I said, I asked my 
folks, I said what is it that we're going to miss if we abolish 
this? What is it we're getting that we'd be doing without. The 
answer is less than a million dollars a year on a bi-annual 
budget of $48 billion, $48,000 million, if you will. So, it's 
not very much money. So, the question really is this. Does 
government have an opportunity here to give a really good tax 
cut to people and to release them from a legal obligation that 
criminalizes them when they don't pay it, and to do a real 
benefit just for working men and women across this country and 
for families and for people, with very little impact upon 
government itself. The answer is yes. So, why not do this 
instead of just simply hold on desperately to that last dollar 
of revenue when, in fact, what we're seeing is a boon in the 
wash of revenue as a result of growth of this industry.
    Mr. Pickering. Mr. Chairman, let me just close with a 
comment, and join with some of my other colleagues who have 
commended your leadership. You are a Governor of a rapidly 
growing State, with a high tech economy. That growth, 
especially in northern Virginia, is spurring benefits for all 
of us. It is really remarkable to see, the difference the high 
tech economy can make. You know, when I came to Congress and 
cast my first vote, I saw on the lights ``yea,'' ``nay'' or 
``present.'' I looked at that ``present,'' and I said that 
would be the greatest advocation of my duty if I ever pushed 
that ``present'' button. So, I want to commend your leadership 
with taking a position. Agree or disagree, you took a position. 
You're advocating, you're defending it, and it is very 
disappointing to see the Clinton Administration, and I try to 
be bipartisan when it comes to telecommunication and technology 
on policy, but to abstain in this important matter, I think 
it's a great advocation of leadership, of responsibility, and 
it definitely would not go down into the book of profiles of 
courage. So, I commend your leadership and look forward to 
working with you on these issues in the future.
    Governor Gilmore. Thank you, Congressman.
    Mr. Tauzin. The gentleman yields back the balance of his 
time. The time of all members has expired. Governor, I'm going 
to recognize the ranking minority member, Mr. Markey, for final 
comments. I will have a few, and then we will thank you very 
much for the generosity of your time and effort here. Mr. 
Markey.
    Mr. Markey. I thank you, Mr. Chairman. I know that 
Commissioners Jones and Kirk and Leavitt and LeBrun and Locke 
actually have their own detailed proposal as well. It's not as 
though they're absenting themselves from the debate. it is that 
they have their own detailed proposal which they----
    Governor Gilmore. Indeed.
    Mr. Markey. [continuing] which they believe should be put 
in place as an alternative.
    Governor Gilmore. Indeed.
    Mr. Markey. I don't know what the nature of the abstention 
was, but I don't think it's for lack of having a substantive 
alternative. With that said, I do agree with the gentleman from 
Mississippi and everyone else who has complimented you on your 
exceptionally articulate presentation of your perspective on 
this issue today. It was a very impressive performance, and we 
thank you for it. It helps to really tee up this issue before 
this committee and before the entire Congress.
    As I said in my opening statement, as we proceed in 
deliberations on this subject, it's important to stay focused 
on the central issues of any tax related matter. Is it a fair 
tax? Is it a fairly and equitably assessed tax? Does the tax 
raise revenues to meet the stated government needs, whether it 
be fire and police and education, or on the national level, for 
Medicare and Medicaid and other purposes, including defense of 
our Nation? Does the tax promote a specific goal for our 
society and economy?
    I think what we heard this morning essentially distilled is 
the question of whether taxing the Internet is a necessary. The 
flip side, however, of the question is whether the giving of 
the Internet of a special tax break is a necessity or not. Is 
it equitable or not? I look forward to continuing the 
discussion on that subject as well.
    I think that the Governor has done an excellent job. I hope 
that the subcommittee continues to bring in experts on the 
subject. We can benefit from all of the incredible time and 
effort that they expended in distilling this debate down to a 
form which I think is now highly useful for Congress, and I 
thank you, Governor, for your excellent presentation.
    Governor Gilmore. Thank you, Congressman.
    Mr. Tauzin. Thank you, Congressman Markey. Finally, 
Governor, on a personal note, on behalf of my children, thank 
you for doing all you've done to reduce that awful car tax in 
Virginia. They have all asked me to personally tell you that, 
and I'm sure you hear that a lot from folks in Virginia. 
Second, to thank you for the extraordinary time you've given us 
today and the effort you put into this. Mr. Markey has said it 
well when he said that your presentation has been 
extraordinarily articulate and to the issues for us.
    Second, to point out that, I think I referred to this 
earlier, but you know that Dick Armey and I have gone around 
the country. Others are doing the same thing now, talking about 
an alternative form for Federal taxation as it applies to the 
States. There is talk about going to a national sales tax. I 
know that you were asked that question, and I know you did not 
consider it as part of the Commission's work. I simply wanted 
to point out that if there is ever going to be a 
rationalization of this system, it may be on some level like 
that, either a declaration nationally or the nexus issue, as 
you recommended to us or some alternative that makes sense 
nationally.
    The bottom line is that not all of us share the view that 
in the process, we have to guarantee government's level of 
income. Second, the government has an obligation in many of our 
views to use some of the efficiencies of the Internet to cut 
down its own expenditures and to save money the way many 
companies and many individuals are saving money through the use 
of these technologies today. All of that has to be factored in 
here somewhere.
    The bottom line is you have added to our discourse today. I 
realize we could have waited until the report was filed, but 
you have come in early and given us a summary and helped us 
immeasurably. We thank you for that. We thank you for, indeed, 
the service you've provided for the country because these 
issues will not go away. My guess is we will be looking at an 
extension of the moratorium that Congress has passed before 
this committee very soon, and we will continue to seek your 
counsel and advice as we go forward.
    Mr. Markey. Mr. Chairman, if I may, briefly.
    Mr. Tauzin. Yes, Mr. Markey.
    Mr. Markey. Yes, in addition to your work in doing away 
with the automobile tax in Virginia, if, Governor, you could by 
some way in which everyone of us in this country and all around 
the world was able to re-register our cars online so that we 
could do away with the Department of Motor Vehicles of the 
world, I think each of us would be willing to support you for 
world commissioner. I think you can skip any other ambitions 
you might have that would be as an intervening career step 
before you reach world commissioner status. Those of us 
continue to work on that particular area of expertise.
    Mr. Tauzin. And those of us who don't believe in one world 
government would ask you to seek some other great advancement 
in your career.
    Thank you so much, and the hearing stands adjourned. The 
Chair wishes to announce that the subcommittee will reconvene 
at 1 for the consideration of our second issue, which is the 
issue of uniform sourcing.
    [Whereupon, at 12:18 p.m., the subcommittee recessed, to 
reconvene at 1 p.m., this same day.]
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