[Congressional Record Volume 144, Number 58 (Monday, May 11, 1998)]
[Senate]
[Pages S4625-S4626]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        INTERNET TAX FREEDOM ACT

  Mr. WYDEN. Madam President, we had a thoughtful discussion on the 
floor of the Senate earlier today with Senator McCain and Senator 
Dorgan especially with respect to the high-tech issues that will be 
coming up over the course of this week.
  In a sense, it is ironic that we call it high-tech week here. I am 
very pleased that Senator Lott and Senator Daschle have been able to 
get an agreement to deal with these issues. And, in a sense, we are 
going to be dealing with high-tech issues all year round as we face the 
21st century. It is not going to be something that we look at just from 
time to time, but it will essentially dominate, in my view, debate 
about public policy in the years ahead. And I am particularly hopeful 
that this week we will have an opportunity on the Senate floor to 
debate the Internet Tax Freedom Act which, as our Presiding Officer 
knows, was debated at some length in the Senate Commerce Committee 
earlier this year.
  My sense is that these tax issues are especially important because it 
is so critical that our country lay out a set of ground rules, a set of 
principles that will address the question of taxation and the digital 
economy.
  Right now, you can live in the Dakotas, and if you want to send a 
tasty fruit basket from a company in Oregon, you can order it on line, 
say, from a firm in Virginia, and pay for it with a Florida bank card, 
and you can end up absolutely baffled with respect to how many 
jurisdictions may be in a position to impose taxes on this particular 
transaction.
  We have already heard in testimony before the committee that the 
uncertainty surrounding these transactions has caused some businesses 
to go under. In particular, we heard from a small business in Tennessee 
about the problem. The Wall Street Journal recently reports in a Peat 
Marwick survey that many financial executives are uncertain with 
respect to how transactions will be handled in cyberspace. This has 
contributed to uncertainty and reluctance to go forward and do business 
on line.
  Recently, one of the prominent analysts, a firm by the name of 
Vertex, cited several States where it was really impossible to know how 
to proceed with respect to electronic commercial transactions because, 
in effect, the rules were so fluid that you would have to get an 
interpretation of tax law that really was not written.
  So I and others have introduced the Internet Tax Freedom Act. And its 
purpose is simple. That is to give consumers and businesses engaged in 
electronic commerce a timeout from discriminatory taxes so that our 
country can develop a fair and reasonable policy on Internet taxation.
  And we are very proud of the strong bipartisan support that this 
effort has received. Governor George Bush, for example, from the State 
of Texas, has recently spoken out on this issue. Our colleague, Senator 
Pat Leahy of Vermont, Steve Forbes--the list of supporters for this 
effort literally spans the spectrum.
  I believe that the reason it has been possible to generate such 
strong bipartisan support for the Internet Tax Freedom Act is that 
during this period where there will be a bar on discriminatory taxes on 
electronic commerce, all other forms of taxation that are used in the 
regular course of business would be allowed to go forward. So during 
the period when our country tries to develop a set of ground rules for 
taxation of electronic commerce--all of the property taxes, all of the 
sales taxes, all of the use taxes, all of the business license fees 
that are nondiscriminatory--would stay in place.

  For our colleagues that have been following this issue, it is all 
laid out very specifically in section 3 of our legislation. For 
example, under our legislation if Mr. Brown in South Dakota picks up 
the phone and orders a sweater from J.C. Penney in Illinois he would 
pay the same sales tax as if he walked into J.C. Penney in Sioux Falls, 
SD. South Dakota taxes sales of goods over the Internet the same as 
sales of tangible personal property through more traditional channels. 
Exactly the same treatment for a transaction, whether it is conducted 
over the Internet or whether it is conducted through more traditional 
means.
  Going further, if you are a chef in Charleston, SC, and you order a 
new saucepan from Williams-Sonoma in California, under our legislation 
you would pay the same sales tax as if you walked in to the Williams 
Sonoma shop in Charleston. South Carolina taxes sales of goods over the 
Internet the same as sales of tangible personal property through more 
traditional channels.
  Now, there has been an effort by some to say that this legislation 
would in some way harm Main Street. The fact of the matter is that Main 
Street has overwhelmingly come out for this legislation. I will append 
to my statement a long list of the business groups that support the 
legislation, but every Member of the U.S. Senate has received a letter 
from the Chamber of Commerce in recent days with a ringing endorsement 
of the Internet tax freedom legislation. And the reason for this very 
strong support, in my view, is that Main Street business has come out 
strongly for the legislation. I believe the reason that Main Street 
businesses are so strongly supporting the Internet Tax Freedom Act is 
that for them, the opportunity to do business on-line ensures that 
geography will be irrelevant in the 21st century.
  A lot of those small businesses on Main Street in rural America--and 
I represent many of them in the State of Oregon--do have difficulty 
competing today in the global marketplace. One of the reasons they do 
is because geography is a very big barrier in terms of their ability to 
tap the global economy. With the Internet Tax Freedom Act ensuring that 
they are treated fairly both during this period when there is an effort 
to come up with new ground rules, and for the 21st century, we give new 
opportunity to those small Main Street businesses across America. I 
believe that is why they have endorsed this legislation so strongly.
  If ever there was an issue that was appropriate for the U.S. Senate 
to deal with, it is this question. This is what article 1 of our 
Constitution is all about. We have 30,000 taxing jurisdictions in 
America. I believe it is fair to say that if a fair number of these 
taxing jurisdictions go forward and levy taxes on electronic commerce, 
in a discriminatory way this will do enormous damage to what I believe 
will be the business infrastructure of the 21st century.
  Senator McCain and Senator Dorgan, as I said, had a very thoughtful 
discussion of the potential of Internet commerce in the years ahead. 
But let us make no mistake about it, if these small businesses all 
across this country are going to suddenly have to put on accountants 
and various kind of tax specialists to figure out what kind of taxes 
they owe in various local jurisdictions across this country, this will 
damage electronic commerce and the ability of the small businesses to 
compete in a profound way.

  If you have a two-person operation, a two-person business operating 
out of an individual's home, and they are somehow supposed to collect 
scores of different sales and property taxes across this country there 
is going to be enormous confusion just as we see the electronic 
marketplace take off. I know no Member of the U.S. Senate wants to see 
that happen.
  The bottom line is that the Internet Tax Freedom Act applies only to 
those taxes that are not technologically neutral. Only those taxes that 
single out the Internet would be affected, and every business in 
America would still have to pay its share of taxes. So if a State has a 
3-percent sales tax that a customer has to pay the State when walking 
into a store to purchase a product, under the Internet Tax Freedom Act, 
section 3 specifically, the State can, in fact, charge a 3-percent 
sales tax on goods ordered over the Internet.
  I am very hopeful that there will be an opportunity to debate this 
issue on the floor of the U.S. Senate. A number of my colleagues, 
Senator Dorgan specifically, have important issues that they want to 
raise. I and other sponsors of this legislation have sought to address 
many of them. But I believe this is one of the most important issues 
that this Senate could be dealing with because it is going to frame the 
ground work for the digital economy in

[[Page S4626]]

the 21st century and it is important that all businesses are treated 
fairly.
  It is also important that the U.S. Senate realize the damage that can 
be done if you continue to see a growth in the kind of confusion that 
the Vertex Company has pointed out with respect to the inability of 
businesses to get answers. We will damage Internet commerce if we see 
more small businesses like the Tennessee businessman who testified 
before the Commerce Committee that he went out of business because of 
the confusion on the part of his State with respect to how electronic 
commercial transactions ought to be handled.
  No Member of the U.S. Senate wants to see that happen. We have an 
opportunity to get this issue with respect to the digital economy 
right. We have a chance to take a timeout from discriminatory taxes, 
come up with a policy for Internet taxation that is fair and makes 
sense. Let's not kill the Internet goose that is showing the capacity 
to lay an extraordinary number of golden eggs.
  I hope we will have a chance to discuss this issue at great length 
throughout the course of the week. I especially want to thank my 
colleagues, Senator McCain, the chairman of the Senate Commerce 
Committee, who has worked diligently with me on this legislation for 
more than a year; my colleague, Senator Dorgan, who does have questions 
about this legislation but has always been very fair in terms of 
raising them. I am very hopeful we will have a chance to debate and 
vote on this legislation during the course of this week.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Allard). The Senator from Florida.
  Mr. GRAHAM addressed the Chair.
  The PRESIDING OFFICER. The Senator from Florida is recognized.

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