[Congressional Record Volume 144, Number 136 (Friday, October 2, 1998)]
[Senate]
[Pages S11312-S11315]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        INTERNET TAX FREEDOM ACT

  The Senate continued with the consideration of the bill.
  The PRESIDING OFFICER. The Senator from Arkansas.


                           Amendment No. 3677

  Mr. BUMPERS. Mr. President, let me remind my colleagues of a very 
simple fact. Don't vote against this amendment because you want to go 
home and tell your constituents that it imposes a new tax. It does not. 
For all of you people, when we talked about unfunded mandates, who 
talked endlessly about States rights, this is a classic States rights 
issue. If you vote against my amendment, you are saying to the States: 
We don't trust you; we are not going to let you collect new taxes on 
remote sales; we are going to stand by while your tax base is eroded, 
while you try to raise property taxes in order to pay for schools, but 
we simply cannot trust you and, therefore, we are not going to give you 
the authority.

  I am telling you--I do not know how I can say it more dramatically, 
more graphically--as a former Main Street merchant, I can tell you it 
is patently unfair to make the people of my State and your States make 
Main Street merchants collect sales tax on every single dime they take 
in, but if you want to move just across the State line and ship it back 
into the State, you can do it and not charge any sales tax.
  I had a cousin who bought a fur coat in New York. The clerk said, 
``You sound like you're southern.'' She said, ``I am. I'm from Little 
Rock.'' The clerk said, ``Why don't you let us mail this coat to you? 
That way you won't have to pay this $100 or $300''--whatever it was--
``in sales tax.'' She said, ``Fine. Just mail it to me.'' That is the 
kind of thing that is going on, and it is going to continue to go on.
  On your desk, in about 10 minutes, you will find the list of people 
in this country who strongly favor the Bumpers amendment. You know who 
they are? They are the Governors; they are the mayors; they are the 
city councils; they are a whole host of Main Street merchant 
organizations. Look at it before you vote, and figure out what you are 
going to say to them the next time you address their organizations on 
why you didn't vote for this amendment. Tell the Governors why their 
tax base is being eroded.
  Mr. President, we exempt in this bill--listen carefully--we exempt 
every mail-order house in the United States that does less than $3 
million a year. That exempts about 89% of the mail-order companies in 
the United States. My amendment would make the States put in a 1-800 
number so any mail-order house that is confused can call the State and 
find out what that State's rule is. We have a blended rate so that the 
mail-order house only has to collect one rate and the States will 
distribute it between the cities and the counties. We have done 
everything in the world to make this as easy as possible for everybody.
  Mr. President, here is an article from the New York Times this 
morning. There is a copy of the article on every member's desk. This 
article make all the arguments that I have made here this morning.
  Let me tell you one other argument they make that I have not made, 
and that is that people who buy on the Internet are the wealthiest 
people in the country. They are the ones who are doing most of the 
buying, because they have Internet access. So if I am a wealthy person, 
I have a computer in my home, and I am on-line, this sales tax loophole 
favors me. The guy making $6 to $10 an hour does not have a computer in 
his house. He does not know what is available on the Internet. It is 
another way of discriminating against those who have the least.
  Mr. President, I am really sorry that we are in such a rush. I know a 
lot of people want to catch planes, and I am sympathetic to that. I 
have been in that situation myself. But I want to say, No. 1, please 
read the New York Times article; please look at the list of people that 
will be on your desk in about 5 minutes who support this amendment; 
and, finally, if you are going to vote against this amendment, please 
figure out what you are going to say to the mayors and the Governors 
who have the responsibility of keeping the schools open, who have the 
responsibility of funding the fire departments, who have the 
responsibility of funding the police departments, keeping the streets 
clean, keeping the landfills in compliance with EPA rules, and all the 
other things that cost ``gazillions'' of dollars across the country. 
Ask them why they are not allowed to collect a little tax to at least 
help pay the landfill for covering up 4 million tons of catalogs a 
year, if nothing else.
  So, Mr. President, I know everybody is in a hurry. And I guess I have 
said about all I need to say. I see Senator Dorgan on the floor who 
wants to speak and who has time allocated. So, Mr. President, I yield 
the floor.
  Mr. DORGAN addressed the Chair.
  The PRESIDING OFFICER. The Senator from North Dakota.
  Mr. DORGAN. Mr. President, let me, in just the 10 minutes that I am 
allotted, make a comment about the amendment offered by Senator Bumpers 
and also to comment about the underlying bill.
  Senator Bumpers offers an amendment that I think is very important 
and one that I intend to vote for and feel is a good amendment. The 
bill brought to the floor of the Senate, in its original form when it 
was passed out of the Commerce Committee, was totally unacceptable to 
me. I voted against it, worked against it, and felt

[[Page S11313]]

its provisions were counterproductive. But since that time, the Senator 
from Oregon, Senator Wyden, Senator McCain, I, and others, have worked 
together; and the bill that will now be presented--I believe changed 
also by the managers' amendment--is a piece of legislation that has 
merit. But I think the legislation will be improved by the amendment 
offered by the Senator from Arkansas as well.
  This legislation is called the Internet Tax Freedom Act. And all of 
us understand that the information superhighway and new technology mean 
that commerce in this country is changing. Nowadays, if you want to buy 
a book, you can walk down to a bookstore someplace and buy a book. You 
might be able to look in a mail-order catalog and buy a book, or you 
might be able to go to your computer and buy a book. In either of those 
cases, you are a consumer purchasing a book.
  You can do the same with a saddle, if you happen to ride horses. You 
can do the same with a car. For that matter, you can do the same with 
virtually all merchandise these days. And the Internet, used for 
commerce purposes, is exploding all around us.
  The question is: When people are accessing the Internet or, for that 
matter, a mail-order catalog, or going downtown to make the purchase at 
a local business, what are the tax consequences? What kind of taxes do 
they pay? To whom do they pay those taxes? These are important issues.
  I am not someone who believes we ought to impede the use of the 
Internet in any way with punitive taxes. I believe that if there are 
punitive or discriminatory taxes that would impede the ability of the 
Internet to serve this country's commerce interests, then let's stop 
that, let's prevent the States from doing that. I have always said to 
the Senator from Oregon, who has been a leader on this issue, you and I 
do not disagree on that score. If there are taxes imposed that are 
punitive, then I say, stop it. But the other question that is raised by 
the Senator from Arkansas is a very important question.
  Someone decides to start a store on the main street of Fargo, ND, or 
Little Rock, AR, and they decide to open for business. They rent a 
place, buy a sign and put it out front. They hire some people to work 
in the place, get some inventory in, and then they open the door. And 
they are proud; they have some flowers around for their grand opening. 
There they are; they are in business. Then someone walks down the 
street, sees their picture window, goes on in, and buys a product.
  When that person buys that product, in Little Rock or in Fargo, ND, 
that person is going to pay the local retail taxes that are imposed by 
that State. That is the way it works. That is the way it always works.
  Then we see an increase in mail-order sales. What happens with mail-
order sales is that someone sends a catalog into the home. The person 
sitting in a home orders the same products, does not go down to a store 
to order but just orders it through the mail, and gets those products 
sold without a sales tax attached. If that State has a 6-percent sales 
tax, it means that catalog seller has about a 6-percent advantage over 
the person who has hired the employees, rented the building, and holds 
himself open for business on Main Street.
  The Senator from Arkansas is correct--and I think not many people 
know this--when the person orders from the mail-order catalog and gets 
the merchandise, that individual has a responsibility--in almost all 
the States--to pay a use tax. Most people will never do that because 
they do not know that requirement exists, don't have the forms to 
comply in any event, and would not want to fill out a set of forms for 
86 cents or $1.86. So the fact is, it does not happen.
  Now, add to mail-order catalog sales the question of Internet sales. 
And what are the tax consequences there? What will be the impact on the 
Main Street businessperson who is competing with that Internet seller, 
competing with the mail-order seller? What will be the impact on that 
Main Street merchant? That is the question that is raised by the 
Senator from Arkansas. It is a very legitimate question.

  I come from the Jeffersonian wing of my political party. The 
Jeffersonian wing believes, as Thomas Jefferson did, that this country 
is made strong by broad-based economic ownership. A lot of men and 
women across this country are in the market system, opening up for 
business, with a network of small businesses doing business all across 
America. We ought to be mindful of how those folks on Main Street that 
are risking all their savings to open their businesses are treated with 
the tax system. If you are a real person that has a business on Main 
Street you are treated one way for tax purposes, but if you have a 
catalog firm or Internet selling operation you are treated a different 
way.
  The Internet Tax Freedom Act, at its roots now, as it has been 
changed, is an attempt to say we don't want anybody to see this 
Internet system as some huge peach out there that they can take a big 
bite out of for tax purposes in a way that is punitive and impedes or 
retards the growth of Internet. I agree with that.
  But the Senator from Arkansas raises another question: Do we want the 
Internet and/or mail-order sellers to have an advantage over the folks 
who open their businesses on Main Street with respect to the imposition 
of State and local taxes? The answer to that ought to be no. This ought 
to be tax neutral. The whole system ought to be tax neutral. No matter 
how you are selling your product, you ought not be in a circumstance 
where you are selling it at an advantage over the person that hired the 
people, found the location and is open for business on Main Street. 
That is the point the Senator from Arkansas is making.
  This is not a new issue, incidentally, for mail-order catalogs, but 
it certainly is a new issue with respect to the Internet.
  I guess it was probably 7 years ago when I was in the other body 
serving on the Ways and Means Committee, probably 8 years ago, and got 
a bill through the subcommittee on the Ways and Means Committee to do 
just exactly what the Senator from Arkansas is proposing. It was very 
controversial. It never got beyond the subcommittee. I got the 
subcommittee to vote it out. But then our committee got millions of 
post cards from across the mail-order spectrum saying that the attempt 
here was to increase taxes. That is not true at all. The Senator from 
Arkansas doesn't propose, and I would never propose, we increase taxes 
on transactions. That is not the case. There is no proposal here that 
would increase anybody's tax.
  The question here is: How do you treat different kinds of commerce in 
a way that is fair with respect to the imposition of State and local 
taxes? Some say let's treat it in this way: Have the Federal Government 
set itself up as the referee and create moratoriums and prohibitions 
and all kinds of mandates with respect to the State and local 
governments. I don't happen to favor that. I don't think that is the 
right approach.
  Others say let us find a way to be helpful to the State and local 
governments to do what is necessary to even this out so we don't have 
discriminatory taxes imposed on one kind of seller versus another kind 
of seller. That is what I think is addressed by the Senator from 
Arkansas.
  I do want to mention with respect to the larger bill that is before 
the Senate, this is very important. If this is done in a way that is 
inappropriate, in a way that we really don't understand, in a way that 
changes words sufficient so that we have a blizzard of litigation in 
all the State courts all across the country or in a way that creates 
safe harbors for certain kinds of people doing certain kinds of 
business or punitive tax treatment because competitors are not faced 
with the same consequences, then we will have done a disservice.
  The moratorium that is described in the legislation is a moratorium 
that I think is appropriate. It says let's take a time out for a few 
years. We will take a time out and we will evaluate where we are. We 
will grandfather the States that have certain kinds of taxes, but we 
won't impose different taxes until we understand what we are doing 
here. I agree with that.
  The New York Times in their editorial this morning says the Senate, 
which debates this bill today, should resist extending the moratorium 
to 5 years. I agree with that, as well. We will have Members come to 
the floor and say, ``Gee, the moratorium is a

[[Page S11314]]

great idea. Let's slap a moratorium on the States.''
  I support a thoughtful, sensible moratorium to give time regarding 
what is happening here, but a 5-year moratorium is far too long. Those 
who propose that with an amendment--I am sure they will; I am told they 
will--I hope we can defeat a 5-year moratorium. That is wholly 
inappropriate.
  Those are the comments I want to make in support of the effort made 
by the Senator from Arkansas. He does the Senate, in my judgment, a 
real service. As he leaves the Senate, I will miss him walking up and 
down the aisle telling us about his home State, but I will miss him 
most importantly for the causes he fights for and the aggressive, 
energetic manner that he fights for these important things. Sometimes 
he wins, sometimes he loses, but the prospect of winning and losing 
doesn't affect the kind of things he knows in his heart are right. He 
is as aggressive as anybody in this Senate in fighting for the things 
he finds important.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Florida.
  Mr. GRAHAM. Mr. President, I urge my colleagues to vote favorably on 
the amendment offered by the Senator from Arkansas. It meets some basic 
tests. It meets the test of essential fairness.
  We have today in this country a situation in which if Main Street 
were divided north and south, all of the stores along the northern part 
of Main Street are meeting their obligations to collect the appropriate 
State and local tax which is levied by their locally elected officials 
within that State and which are used to support State and local 
government. But the stores along the south side of Main Street are 
treated differently because the south side of Main Street is in another 
State, in another jurisdiction. Therefore, the sales that are made on 
the south side of Main Street are not subject to the requirement of 
collection by the seller as are the stores on the north side of Main 
Street.
  Therefore, if you go into a clothing store on the north side of Main 
Street and buy a suit, shirt, dress or shoes, you will pay and the 
store will collect and remit to the State those taxes which have been 
levied. But if you are on the south side of Main Street and you are 
communicating by telephone or through the post office, that seller does 
not have that obligation to collect the tax.
  This is fundamentally unfair. It is not only unfair to the retail 
seller on the north side of the street, it is also unfair in that it 
deprives the community of the resources which are necessary in order to 
pay for police, fire, health, and particularly educational services, 
the most expensive service that most communities provide to their 
citizens.
  In his opening statement, the Senator from Oregon and my colleague 
and good friend, Senator Wyden, indicated that the fundamental issue 
here is to treat commerce in a state of neutrality as it relates to 
technology. I think that very appropriately states the destination that 
we all want to get to, that we want to treat commerce with neutrality 
as it relates to the technology with which the commerce is conducted. 
Clearly, that is not the state of the law today.
  Senator Bumpers gives us an opportunity to achieve that neutrality by 
saying that all sellers will be responsible for the collection of State 
and local sales tax whether they are on the north or south side of Main 
Street.
  In addition to being an issue of fairness, it is an issue of our 
Nation's future. If there is one thing that unites Americans in 1998, 
it is a recognition that our future as a nation, our future as a 
cultural leader, as a security leader, and as an economic leader 
depends, more than any single thing, on the ability of each individual 
American to be able to perform at their highest level of potential. And 
it is to our education system that we look to provide for most 
Americans that means by which they can achieve their full ability.

  We have decided here in the Congress--and it is a position which I 
generally support also as a member of the Jefferson wing of the 
Democratic Party--that the best government is that government which is 
closest to the people who are served. We have, in a number of areas, 
devolved responsibilities to State and local governments. Those 
responsibilities also carry with them the obligation of State and local 
governments to provide the resources to finance those services.
  We have also, Mr. President, thus far, refused to provide for 
additional partnerships where the Federal Government could enter into 
programs to assist State and local responsibilities. One of the most 
dramatic of those has been in the area of school construction. I must 
personally say, having stated my essential Jeffersonian position, that 
I believe it is appropriate for the Federal Government to assist local 
school districts and States in seeing that old schools are 
rehabilitated and new schools are constructed to meet an increase in 
student population. This is a particular issue in my State of Florida, 
Mr. President, as we are entering a state of maturity in Florida in 
which we have many schools that are now 40, 50, 60 years old, or more, 
and need substantial rehabilitation. We are also a State that, every 
year, is adding some 50,000 to 60,000 new students to our public 
schools, therefore requiring new schools to be constructed in order to 
provide the classrooms and laboratories for those additional students, 
without resorting to overcrowded classrooms.
  I believe that the Federal Government has a role to play in this 
area, and it will be a role that could be played without undue 
interference with the responsibilities of State and local officials for 
the management of public education. I point out, however, that none of 
those efforts to provide for expanded Federal assistance has been 
accepted--other than some items through the Tax Code--and there has 
been a limited benefit to a certain number of school districts. But if 
we are not going to be providing an aggressive partnership to help 
States meet what today is over a $200 billion unmet need for school 
rehabilitation and new school construction, at least we ought to be 
assisting the States by allowing them to have their own taxes collected 
by remote sellers.
  According to the New York Times editorial, which was previously 
referenced, the loophole that exists in today's law that holds that 
remote sellers are not responsible for collecting State and local sales 
taxes results in a revenue loss of $3.5 billion today. And that number 
will rise as more commerce is conducted from remote sales. That $3.5 
billion, if the States collect it, could finance a significant 
beginning of States meeting their school construction needs.
  So as I believe the first principle of the former profession of the 
occupant of the Chair is to ``do no harm,'' at least we ought to do no 
harm to the States by not precluding them from securing the revenue 
which they would have gotten had those sales been on the north side of 
Main Street because the decision was made to buy on the south side of 
Main Street from a remote seller.
  So, Mr. President, this is not only an issue of fundamental fairness, 
it is an issue of States in this era of devolution of responsibility 
and Federal reticence to provide assistance to States carrying out 
their most important responsibilities, such as the education of their 
children. This will be a step toward our recognizing our 
responsibilities to our brethren at the State level to be able to 
fulfill these responsibilities.
  Now, Mr. President, as I conclude, I do so with strong support for 
the amendment of the Senator from Arkansas. Having offered the same 
amendment in the Finance Committee and having seen it defeated, and 
knowing this is not the first time that it has been debated on the 
Senate floor with the result being defeat, I am not optimistic that the 
Senate today, regrettably, will adopt the amendment of the Senator from 
Arkansas.
  We are going to have another debate on a collateral subject, Mr. 
President. I alert my colleagues to this. It is the debate on whether 
the commission, which will be established in Senator Wyden's bill, 
should have the opportunity to consider the issue of the responsibility 
of remote sellers to collect State and local sales tax. At a minimum, 
if we are not going to adopt Senator Bumpers' very wise proposal today, 
we certainly should allow the commission to consider this on another

[[Page S11315]]

day with even more analysis than we already have, and we will be in a 
position to do so.
  Mr. President, as I conclude, I ask unanimous consent to have printed 
in the Record an editorial from the New York Times of October 2, 1998, 
entitled ``Fair Taxation in Cyberspace.''
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                 [From the New York Times Oct. 2, 1998]

                      Fair Taxation in Cyberspace

       The rapid growth in sales of goods over the Internet raises 
     hard questions about how states might fairly tax those 
     transactions. The same problem has existed for years in mail-
     order sales. Consumers are technically liable for sales taxes 
     on all purchases, including out-of-state catalogue purchases, 
     but mail-order companies are required to collect sales taxes 
     only in states where they maintain a physical presence. This 
     loophole costs state and local governments about $3.5 billion 
     a year.
       The National Governors' Association and local government 
     groups are rightly worried they will lose billions more a 
     year from Internet sales that would otherwise be taxable in a 
     traditional store. That loss--estimated to reach $10 billion 
     a year in the next decade--will have a disproportionate 
     impact on states that depend heavily on sales taxes, 
     providing a tax break mostly for the affluent who have access 
     to the Internet.
       On-line service providers and electronic commerce lobbying 
     groups, of course, want to make cyberspace tax-free, arguing 
     that taxation would choke off Internet growth. Tax policy 
     should not discriminate against electronic sales. But neither 
     should the Internet be protected from taxes that apply in 
     other realms of commerce.
       Congress should keep the principle of parity in mind as it 
     works through the proposed Internet Tax Freedom Act. The bill 
     is intended to give state and Federal officials some 
     breathing room to tackle these issues in a coordinated 
     fashion. The House version, approved in June, would establish 
     a three-year moratorium on any new Internet sales taxes and 
     taxes on access to on-line services. It would also create a 
     national advisory commission to examine ways to improve tax 
     collection on all remote sales, including possible changes in 
     Federal law to close the out-of-state-sales loophole.
       The Senate, which debates the bill today, should resist 
     extending the moratorium to five years, as some senators 
     want. A long moratorium is unnecessary and would be hard to 
     undo as consumers and businesses become accustomed to a tax-
     free cyberspace. In the meantime, the dozen states that have 
     enacted Internet access taxes should be allowed to keep those 
     taxes in place. Congress has no good reason to truncate state 
     taxing authority, particularly since Internet commerce is 
     thriving.

  Mr. FORD addressed the Chair.
  The PRESIDING OFFICER. The Senator from Kentucky is recognized.
  Mr. FORD. Mr. President, I yield myself 1 minute from the time 
remaining of the Senator from Arkansas, Mr. Bumpers.
  Mr. President, we have talked about catalog sales and the loss of 
funds. Yesterday, on the DOD authorization bill, we usurped States in 
their ability to tax, and now we are turning that around. Yesterday, we 
told the States that we are going to usurp a tax if we don't think it 
is fair locally or statewide. The residents of Tennessee who work in 
Kentucky at a Federal installation, who have been paying taxes--and the 
States have worked it out--were excluded yesterday. And then my 
residents in Kentucky are paying the Tennessee sales tax, and they were 
not exempt because Tennessee goes on a high sales tax and no income 
tax. So, yesterday we said to State and local governments that you 
can't tax.
  There are 240 installations around the country. I think you will rue 
the day that you usurped the Buck Act and you said to the States that 
we are Big Brother and we will tell you how to tax. Now we have a 
catalog question before us that says we ought to get the tax. So we 
have to be very careful what we are doing. Yesterday was a bad day, not 
necessarily for Kentucky, but for others. Oregon had the same problem 
with Washington. They passed a law and worked it out and everything is 
fine. That is what we ought to do between States. This was not a 
Federal tax.
  I yield the floor.
  Mr. CHAFEE. Mr. President, like my friend from Arkansas, I am 
concerned about the effect that mail order sales companies have on 
local retailers. I have no axe to grind with these businesses, and in 
fact applaud their ability to provide a very important service to many 
Americans. The convenience of this type of purchasing is good for the 
consumer.
  What does concern me is the possibility that mail order and other 
direct sales companies' popularity is on the rise simply because they 
are not required to collect state sales taxes. I do not know if that is 
the true reason for their growth, but I would be concerned if they are 
taking advantage of what may be, in effect, an uneven playing field. 
Remember, local merchants, who compete with direct sales companies for 
business, have no opportunity to avoid collecting sales tax on their 
transactions.
  Mr. President, the amendment offered by the Senator from Arkansas 
raises a very important issue, and I am glad that the Senate has had 
the opportunity to debate it this morning. But this is a complicated 
issue, and cannot be fully considered over a few hours of debate on the 
floor of the Senate.
  I have several questions about the proposal offered by the Senator 
from Arkansas. For example, is it reasonable to set the exemption level 
at $3 million of annual sales? Is the per state exemption level of 
$100,000 in annual sales an appropriate level? On whom should this 
obligation be imposed?
  Mr. President, these are just some of the questions that the Advisory 
Commission should be given the opportunity to explore. It may be that 
when this issue is fully reviewed, the Congress will decide that the 
approach proposed by the Senator from Arkansas is the correct one. But 
I don't think we can make that judgment today, and that is why I am 
voting to table this amendment.
  Mr. McCAIN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Arizona.
  Mr. McCAIN. Mr. President, I yield 5 minutes of Senator Snowe's time 
to the Senator from Pennsylvania, Senator Specter.
  The PRESIDING OFFICER. The Senator from Pennsylvania is recognized.

                          ____________________