[Congressional Record Volume 144, Number 135 (Thursday, October 1, 1998)]
[Senate]
[Pages S11269-S11272]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        INTERNET TAX FREEDOM ACT

  Mr. McCAIN. Mr. President, under the provisions of the consent 
agreement of September 30, 1998, I now ask the Chair to lay before the 
Senate S. 442, the Internet tax freedom bill.
  The PRESIDING OFFICER (Mr. Bennett). The clerk will report.
  The legislative clerk read as follows:

       A bill (S. 442) to establish national policy against State 
     and local government interference with interstate commerce on 
     the Internet or interactive computer services, and to 
     exercise Congressional jurisdiction over the interstate 
     commerce by establishing a moratorium on the imposition of 
     exaction that would interfere with the free flow of commerce 
     via the Internet, and for other purposes.

  The Senate proceeded to consider the bill, which had been reported 
from the Committee on Finance, with amendments, as follows:

       (The parts of the bill intended to be stricken are shown in 
     boldface brackets and the parts of the bill intended to be 
     inserted are shown in italic.)

                                 S. 442

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     [SECTION 1. SHORT TITLE.

       [This Act may be cited as the ``Internet Tax Freedom Act''.

     [SEC. 2. FINDINGS.

       [The Congress finds the following:
       [(1) As a massive global network spanning not only State 
     but international borders, the Internet and the related 
     provision of online services and Internet access service are 
     inherently a matter of interstate and foreign commerce within 
     the jurisdiction of the United States Congress under Article 
     I, section 8, clause 3 of the United States Constitution.
       [(2) Even within the United States, the Internet does not 
     respect State lines and operates independently of State 
     boundaries. Addresses on the Internet are designed to be 
     geographically indifferent. Internet transmissions are 
     insensitive to physical distance and can have multiple 
     geographical addresses.
       [(3) Because transmissions over the Internet are made using 
     computer protocols, in particular the Transmission Control 
     Protocol / Internet Protocol, that utilize packet-switching 
     technology it is impossible to determine in advance the 
     precise geographic route individual Internet transmissions 
     will travel over, and it is therefore infeasible to separate 
     domestic intrastate Internet transmissions from interstate 
     and foreign Internet transmissions.
       [(4) Consumers, businesses, and others engaging in 
     interstate and foreign commerce through online services and 
     Internet access service could become subject to more than 
     30,000 separate taxing jurisdictions in the United States 
     alone.
       [(5) Inconsistent and inadministerable taxes imposed on 
     online services and Internet access service by State and 
     local governments threaten to--
       [(A) subject consumers, businesses, and other users engaged 
     in interstate and foreign commerce to multiple, confusing, 
     and burdensome taxation,
       [(B) restrict the growth and continued technological 
     maturation of the Internet itself, and
       [(C) call into question the continued viability of this 
     dynamic medium.
       [(6) Because the tax laws and regulations of so many 
     jurisdictions were established long before the advent of the 
     Internet, online services, and Internet access service, their 
     application to this new medium and services in unintended and 
     unpredictable ways could prove to be an unacceptable burden 
     on the interstate and foreign commerce of the Nation.
       [(7) The electronic marketplace of services, products, and 
     ideas available through the Internet can be especially 
     beneficial to senior citizens, the physically challenged, 
     citizens in rural areas, and small businesses. It also offers 
     a variety of uses and benefits for educational institutions 
     and charitable organizations.
       [(8) A consistent and coherent national policy regarding 
     taxation of online services, Internet access service, and 
     communications and transactions using the Internet, and the 
     concomitant uniformity, simplicity, and fairness that is 
     needed to avoid burdening this evolving form of interstate 
     and foreign commerce, can best be achieved by the United 
     States exercising its authority under Article I, section 8, 
     clause 3 of the United States Constitution.

     [SEC. 3. MORATORIUM ON IMPOSITION OF TAXES ON THE INTERNET, 
                   ONLINE SERVICES, OR INTERNET ACCESS SERVICE.

       [(a) Moratorium.--Except as otherwise provided in this Act, 
     prior to January 1, 2004, no State or political subdivision 
     thereof may impose, assess, or attempt to collect any tax 
     on--
       [(1) communications or transactions using the Internet; and
       [(2) online services or Internet access service.
       [(b) Preservation of State and Local Taxing Authority.--
     Subsection (a) shall not--
       [(1) affect the authority of a State, or a political 
     subdivision thereof, to impose a sales, use, or other 
     transaction tax on online services, Internet access service, 
     or communications or transactions using the Internet if--
       [(A) the tax (including the rate at which it is imposed) is 
     the same as the tax generally imposed and collected by that 
     State or political subdivision thereof in the case of similar 
     sales, use, or transactions not using the Internet, online 
     services, or Internet access service; and
       [(B) the obligation to collect or pay the tax from sales or 
     other transactions using the Internet, online services, or 
     Internet access service is imposed on the same person or 
     entity as in the case of similar sales, use, or transactions 
     not using the Internet, online services, or Internet access 
     service;
       [(2) apply to taxes imposed on or measured by gross or net 
     income derived from online services, Internet access service, 
     or communications or transactions using the Internet, or on 
     value added, net worth, or capital stock;
       [(3) apply to fairly apportioned business license taxes;
       [(4) apply to taxes paid by a provider or user of online 
     services or Internet access service as a consumer of goods 
     and services

[[Page S11270]]

     not otherwise excluded from taxation pursuant to this Act;
       [(5) apply to property taxes imposed or assessed on 
     property owned or leased by a provider or user of online 
     services or Internet access service;
       [(6) apply to taxes imposed on or collected by a common 
     carrier, as defined in section 3 of the Communications Act of 
     1934 (47 U.S.C. 153), acting in its capacity as a common 
     carrier;
       [(7) apply to taxes imposed on or collected by a provider 
     of telecommunications service, as that term is defined in 
     section 3 of the Communications Act of 1934 (47 U.S.C. 153); 
     or
       [(8) apply to franchise fees imposed by a State or local 
     franchising authority, pursuant to sections 622 or 653 of the 
     Communications Act of 1934 (47 U.S.C. 622 or 573), for the 
     provision of cable services, as those terms are defined by 
     such Act.

     [SEC. 4. ADMINISTRATION POLICY RECOMMENDATIONS TO CONGRESS.

       [(a) Consultative Group.--The Secretaries of the Treasury, 
     Commerce, and State, in consultation with appropriate 
     committees of the Congress, the National Tax Association-
     sponsored Joint Communications and Electronic Commerce Tax 
     Project and the National Conference of Commissioners of 
     Uniform State Laws, consumer and business groups, States and 
     political subdivisions thereof, and other appropriate groups, 
     shall--
       [(1) undertake an examination of United States domestic and 
     international taxation of--
       [(A) communications and transactions using the Internet,
       [(B) online services and Internet access service, and
       [(C) the telecommunications infrastructure used by the 
     Internet, online services, and Internet access service;
       [(2) consider any specific proposals made by the Joint 
     Communications and Electronic Commerce Tax Project and the 
     National Conference of Commissioners of Uniform State Laws 
     concerning appropriate parameters for taxation by States, and 
     political subdivisions thereof, of matters described in 
     paragraph (1); and
       [(3) jointly submit appropriate policy recommendations 
     concerning United States domestic and foreign policies toward 
     taxation of online services, Internet access service, and 
     communications and transactions using the Internet, if any, 
     to the President within 18 months after the date of enactment 
     of this Act.
       [(b) President.--Not later than 2 years after the date of 
     enactment of this Act, the President shall, to the extent and 
     in the form the President deems appropriate, transmit to the 
     appropriate committees of Congress policy recommendations on 
     taxation of online services, Internet access service, and 
     communications and transactions using the Internet.

     [SEC. 5. DECLARATION THAT THE INTERNET SHOULD BE FREE OF 
                   FOREIGN TARIFFS, TRADE BARRIERS, AND OTHER 
                   RESTRICTIONS.

       [It is the sense of the Congress that the President should 
     seek bilateral and multilateral agreements through the World 
     Trade Organization, the Organization for Economic Cooperation 
     and Development, the Asia Pacific Economic Cooperation 
     Council, and other appropriate international fora to 
     establish that commercial transactions using the Internet are 
     free from tariff and taxation.

     [SEC. 6. DEFINITIONS.

       [For the purposes of this Act--
       [(1) Internet.--The term ``Internet'' means collectively 
     the myriad of computer and telecommunications facilities, 
     including equipment and operating software, which comprise 
     the interconnected world-wide network of networks that employ 
     the Transmission Control Protocol / Internet Protocol, or any 
     predecessor or successor protocols to such protocol, to 
     communicate information of all kinds by wire or radio.
       [(2) Online services.--The term ``online services'' means 
     the offering or provision of information, information 
     processing, and products or services to a user as part of a 
     package of services that are combined with Internet access 
     service and offered to the user for a single price.
       [(3) Internet access service.--The term ``Internet access 
     service'' means the offering or provision of the storage, 
     computer processing, and transmission of information that 
     enables the user to make use of resources found via the 
     Internet.
       [(4) Tax--The term ``tax'' includes any charge imposed by 
     legislative authority to raise revenue for the needs of the 
     public, as well as any license or fee that is imposed by any 
     governmental entity. Such term also includes the imposition 
     on the seller of an obligation to collect and remit to a 
     governmental entity any charge (as defined in the preceding 
     sentence), license, or fee imposed on the buyer by a 
     governmental entity.]

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Internet Tax Freedom Act''.
                  TITLE I--MORATORIUM ON CERTAIN TAXES

     SEC. 101. MORATORIUM.

       (a) Moratorium.--No State or political subdivision thereof 
     shall impose any of the following taxes on transactions 
     occurring during the period beginning on July 29, 1998, and 
     ending 2 years after the date of the enactment of this Act:
       (1) Taxes on Internet access.
       (2) Bit taxes.
       (3) Multiple or discriminatory taxes on electronic 
     commerce.
       (b) Application of Moratorium.--Subsection (a) shall not 
     apply with respect to the provision of Internet access that 
     is offered for sale as part of a package of services that 
     includes services other than Internet access, unless the 
     service provider separately states that portion of the 
     billing that applies to such services on the user's bill.

     SEC. 102. ADVISORY COMMISSION ON ELECTRONIC COMMERCE.

       (a) Establishment of Commission.--There is established a 
     commission to be known as the Advisory Commission on 
     Electronic Commerce (in this title referred to as the 
     ``Commission''). The Commission shall--
       (1) be composed of 16 members appointed in accordance with 
     subsection (b), including the chairperson who shall be 
     selected by the members of the Commission from among 
     themselves; and
       (2) conduct its business in accordance with the provisions 
     of this title.
       (b) Membership.--
       (1) In general.--The Commissioners shall serve for the life 
     of the Commission. The membership of the Commission shall be 
     as follows:
       (A) Four representatives from the Federal Government 
     comprised of the Secretary of Commerce, the Secretary of 
     State, the Secretary of the Treasury, and the United States 
     Trade Representative, or their respective representatives.
       (B) Six representatives from State and local governments 
     comprised of--
       (i) two representatives appointed by the Majority Leader of 
     the Senate;
       (ii) one representative appointed by the Minority Leader of 
     the Senate;
       (iii) two representatives appointed by the Speaker of the 
     House of Representatives; and
       (iv) one representative appointed by the Minority Leader of 
     the House of Representatives.
       (C) Six representatives of the electronic industry and 
     consumer groups comprised of--
       (i) two representatives appointed by the Majority Leader of 
     the Senate;
       (ii) one representative appointed by the Minority Leader of 
     the Senate;
       (iii) two representatives appointed by the Speaker of the 
     House of Representatives; and
       (iv) one representative appointed by the Minority Leader of 
     the House of Representatives.
       (2) Appointments.--Appointments to the Commission shall be 
     made not later than 45 days after the date of the enactment 
     of this Act. The chairperson shall be selected not later than 
     60 days after the date of the enactment of this Act.
       (3) Vacancies.--Any vacancy in the Commission shall not 
     affect its powers, but shall be filled in the same manner as 
     the original appointment.
       (c) Acceptance of Gifts and Grants.--The Commission may 
     accept, use, and dispose of gifts or grants of services or 
     property, both real and personal, for purposes of aiding or 
     facilitating the work of the Commission. Gifts or grants not 
     used at the expiration of the Commission shall be returned to 
     the donor or grantor.
       (d) Other Resources.--The Commission shall have reasonable 
     access to materials, resources, data, and other information 
     from the Department of Justice, the Department of Commerce, 
     the Department of State, the Department of the Treasury, and 
     the Office of the United States Trade Representative. The 
     Commission shall also have reasonable access to use the 
     facilities of any such Department or Office for purposes of 
     conducting meetings.
       (e) Sunset.--The Commission shall terminate 18 months after 
     the date of the enactment of this Act.
       (f) Rules of the Commission.--
       (1) Quorum.--Nine members of the Commission shall 
     constitute a quorum for conducting the business of the 
     Commission.
       (2) Meetings.--Any meetings held by the Commission shall be 
     duly noticed at least 14 days in advance and shall be open to 
     the public.
       (3) Opportunities to testify.--The Commission shall provide 
     opportunities for representatives of the general public, 
     taxpayer groups, consumer groups, and State and local 
     government officials to testify.
       (4) Additional rules.--The Commission may adopt other rules 
     as needed.
       (g) Duties of the Commission.--
       (1) In general.--The Commission shall conduct a thorough 
     study of Federal, State and local, and international taxation 
     and tariff treatment of transactions using the Internet and 
     Internet access and other comparable interstate or 
     international sales activities.
       (2) Issues to be studied.--The Commission may include in 
     the study under subsection (a)--
       (A) an examination of--
       (i) barriers imposed in foreign markets on United States 
     providers of property, goods, services, or information 
     engaged in electronic commerce and on United States providers 
     of telecommunications services; and
       (ii) how the imposition of such barriers will affect United 
     States consumers, the competitiveness of United States 
     citizens providing property, goods, services, or information 
     in foreign markets, and the growth and maturing of the 
     Internet;
       (B) an examination of the collection and administration of 
     consumption taxes on interstate commerce in other countries 
     and the United States, and the impact of such collection 
     on the global economy, including an examination of the 
     relationship between the collection and administration of 
     such taxes when the transaction uses the Internet and when 
     it does not;
       (C) an examination of the impact of the Internet and 
     Internet access (particularly voice transmission) on the 
     revenue base for taxes imposed under section 4251 of the 
     Internal Revenue Code of 1986;
       (D) an examination of--
       (i) the efforts of State and local governments to collect 
     sales and use taxes owed on purchases from interstate 
     sellers, the advantages and disadvantages of authorizing 
     State and local governments to require such sellers to 
     collect and remit such taxes, particularly with respect to 
     electronic commerce, and the level of contacts sufficient to 
     permit a State or local government

[[Page S11271]]

     to impose such taxes on such interstate commerce;
       (ii) model State legislation relating to taxation of 
     transactions using the Internet and Internet access, 
     including uniform terminology, definitions of the 
     transactions, services, and other activities that may be 
     subject to State and local taxation, procedural structures 
     and mechanisms applicable to such taxation, and a mechanism 
     for the resolution of disputes between States regarding 
     matters of multiple taxation; and
       (iii) ways to simplify the interstate administration of 
     sales and use taxes on interstate commerce, including a 
     review of the need for a single or uniform tax registration, 
     single or uniform tax returns, simplified remittance 
     requirements, simplified administrative procedures, or the 
     need for an independent third party collection system; and
       (E) the examination of ways to simplify Federal and State 
     and local taxes imposed on the provision of 
     telecommunications services.

     SEC. 103. REPORT.

       Not later than 18 months after the date of the enactment of 
     this Act, the Commission shall transmit to Congress a report 
     reflecting the results of the Commission's study under this 
     title. No finding or recommendation shall be included in the 
     report unless agreed to by at least two-thirds of the members 
     of the Commission serving at the time the finding or 
     recommendation is made.

     SEC. 104. DEFINITIONS.

       For the purposes of this title:
       (1) Bit tax.--The term ``bit tax'' means any tax on 
     electronic commerce expressly imposed on or measured by the 
     volume of digital information transmitted electronically, or 
     the volume of digital information per unit of time 
     transmitted electronically, but does not include taxes 
     imposed on the provision of telecommunications services.
       (2) Discriminatory tax.--The term ``discriminatory tax'' 
     means any tax imposed by a State or political subdivision 
     thereof on electronic commerce that--
       (A) is not generally imposed and legally collectible by 
     such State or such political subdivision on transactions 
     involving the same or similar property, goods, services, or 
     information accomplished through other means;
       (B) is not generally imposed and legally collectible at the 
     same rate by such State or such political subdivision on 
     transactions involving the same or similar property, goods, 
     services, or information accomplished through other means, 
     unless the rate is lower as part of a phase-out of the tax 
     over not more than a 5-year period; or
       (C) imposes an obligation to collect or pay the tax on a 
     different person or entity than in the case of transactions 
     involving the same or similar property, goods, services, or 
     information accomplished through other means.
       (3) Electronic commerce.--The term ``electronic commerce'' 
     means any transaction conducted over the Internet or through 
     Internet access, comprising the sale, lease, license, offer, 
     or delivery of property, goods, services, or information, 
     whether or not for consideration, and includes the provision 
     of Internet access.
       (4) Internet.--The term ``Internet'' means the combination 
     of computer facilities and electromagnetic transmission 
     media, and related equipment and software, comprising the 
     interconnected worldwide network of computer networks that 
     employ the Transmission Control Protocol/Internet Protocol, 
     or any predecessor or successor protocol, to transmit 
     information.
       (5) Internet access.--The term ``Internet access'' means a 
     service that enables users to access content, information, 
     electronic mail, or other services offered over the Internet, 
     and may also include access to proprietary content, 
     information, and other services as part of a package of 
     services offered to consumers. Such term does not include 
     telecommunications services.
       (6) Multiple tax.--
       (A) In general.--The term ``multiple tax'' means any tax 
     that is imposed by one State or political subdivision thereof 
     on the same or essentially the same electronic commerce that 
     is also subject to another tax imposed by another State or 
     political subdivision thereof (whether or not at the same 
     rate or on the same basis), without a credit (for example, a 
     resale exemption certificate) for taxes paid in other 
     jurisdictions.
       (B) Exception.--Such term shall not include a sales or use 
     tax imposed by a State and 1 or more political subdivisions 
     thereof on the same electronic commerce or a tax on persons 
     engaged in electronic commerce which also may have been 
     subject to a sales or use tax thereon.
       (C) Sales or use tax.--For purposes of subparagraph (B), 
     the term ``sales or use tax'' means a tax that is imposed on 
     or incident to the sale, purchase, storage, consumption, 
     distribution, or other use of tangible personal property or 
     services as may be defined by laws imposing such tax and 
     which is measured by the amount of the sales price or other 
     charge for such property or service.
       (7) State.--The term ``State'' means any of the several 
     States, the District of Columbia, or any commonwealth, 
     territory, or possession of the United States.
       (8) Tax.--
       (A) In general.--The term ``tax'' means--
       (i) any levy, fee, or charge imposed under governmental 
     authority by any governmental entity; or
       (ii) the imposition of or obligation to collect and to 
     remit to a governmental entity any such levy, fee, or charge 
     imposed by a governmental entity.
       (B) Exception.--Such term shall not include any franchise 
     fees or similar fees imposed by a State or local franchising 
     authority, pursuant to section 622 or 653 of the 
     Communications Act of 1934 (47 U.S.C. 542, 573).
       (9) Telecommunications services.--The term 
     ``telecommunications services'' has the meaning given such 
     term in section 3(46) of the Communications Act of 1934 (47 
     U.S.C. 153(46)) and includes communications services (as 
     defined in section 4251 of the Internal Revenue Code of 
     1986).
                       TITLE II--OTHER PROVISIONS

     SEC. 201. DECLARATION THAT INTERNET SHOULD BE FREE OF NEW 
                   FEDERAL TAXES.

       It is the sense of Congress that no new Federal taxes 
     similar to the taxes described in section 101(a) should be 
     enacted with respect to the Internet and Internet access 
     during the moratorium provided in such section.

     SEC. 202. NATIONAL TRADE ESTIMATE.

       Section 181 of the Trade Act of 1974 (19 U.S.C. 2241) is 
     amended--
       (1) in subsection (a)(1)--
       (A) in subparagraph (A)--
       (i) by striking ``and'' at the end of clause (i);
       (ii) by inserting ``and'' at the end of clause (ii); and
       (iii) by inserting after clause (ii) the following new 
     clause:
       ``(iii) United States electronic commerce,''; and
       (B) in subparagraph (C)--
       (i) by striking ``and'' at the end of clause (i);
       (ii) by inserting ``and'' at the end of clause (ii);
       (iii) by inserting after clause (ii) the following new 
     clause:
       ``(iii) the value of additional United States electronic 
     commerce,''; and
       (iv) by inserting ``or transacted with,'' after ``or 
     invested in'';
       (2) in subsection (a)(2)(E)--
       (A) by striking ``and'' at the end of clause (i);
       (B) by inserting ``and'' at the end of clause (ii); and
       (C) by inserting after clause (ii) the following new 
     clause:
       ``(iii) the value of electronic commerce transacted 
     with,''; and
       (3) by adding at the end the following new subsection:
       ``(d) Electronic Commerce.--For purposes of this section, 
     the term `electronic commerce' has the meaning given that 
     term in section 104(3) of the Internet Tax Freedom Act.''.

     SEC. 203. DECLARATION THAT THE INTERNET SHOULD BE FREE OF 
                   FOREIGN TARIFFS, TRADE BARRIERS, AND OTHER 
                   RESTRICTIONS.

       (a) In General.--It is the sense of Congress that the 
     President should seek bilateral, regional, and multilateral 
     agreements to remove barriers to global electronic commerce 
     through the World Trade Organization, the Organization for 
     Economic Cooperation and Development, the Trans-Atlantic 
     Economic Partnership, the Asia Pacific Economic Cooperation 
     forum, the Free Trade Area of the America, the North American 
     Free Trade Agreement, and other appropriate venues.
       (b) Negotiating Objectives.--The negotiating objectives of 
     the United States shall be--
       (1) to assure that electronic commerce is free from--
       (A) tariff and nontariff barriers;
       (B) burdensome and discriminatory regulation and standards; 
     and
       (C) discriminatory taxation; and
       (2) to accelerate the growth of electronic commerce by 
     expanding market access opportunities for--
       (A) the development of telecommunications infrastructure;
       (B) the procurement of telecommunications equipment;
       (C) the provision of Internet access and telecommunications 
     services; and
       (D) the exchange of goods, services, and digitalized 
     information.
       (c) Electronic Commerce.--For purposes of this section, the 
     term ``electronic commerce'' has the meaning given that term 
     in section 104(3).

     SEC. 204. NO EXPANSION OF TAX AUTHORITY.

       Nothing in this Act shall be construed to expand the duty 
     of any person to collect or pay taxes beyond that which 
     existed immediately before the date of the enactment of this 
     Act.

     SEC. 205. PRESERVATION OF AUTHORITY.

       Nothing in this Act shall limit or otherwise affect the 
     implementation of the Telecommunications Act of 1996 (Public 
     Law 104-104) or the amendments made by such Act.

  (Under the order of September 30, 1998, the Commerce Committee 
amendment and the Finance Committee amendment were agreed to.)
  Mr. McCAIN. For the information of all Senators, several amendments 
are expected to be offered and debated tomorrow to this vital piece of 
legislation. Therefore, all Members should be aware that votes can be 
expected to occur on Friday.
  Mr. President, tomorrow morning we will start out with a Bumpers 
amendment which he will be prepared to propound shortly after we 
convene in the morning. And we expect a couple of other amendments 
besides that. Also, it is the intention of the leader to file cloture 
tomorrow morning, as well, on this legislation since we only have a few 
days remaining in the session.
  We have been working with Senator Dorgan and with Senator Graham of 
Florida to try to resolve the remaining issues, and with Senator Judd 
Gregg of New Hampshire. I am hopeful that we can reach agreement which 
would then allow us to move forward quickly and resolve this very 
important piece of legislation.

[[Page S11272]]

  I yield the floor.
  The PRESIDING OFFICER. The Chair, in his capacity as a Senator from 
the State of Utah, suggests the absence of a quorum.
  The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mrs. HUTCHISON. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________