[Congressional Record Volume 144, Number 136 (Friday, October 2, 1998)]
[Senate]
[Pages S11316-S11318]
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.
  Mr. WYDEN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Oregon.
  Mr. WYDEN. Thank you, Mr. President.


                           Amendment No. 3677

  Mr. President, Senator McCain and I have 5 minutes to briefly respond 
to Senator Bumpers' proposal. I will use a couple of those minutes of 
time.
  First, let me say that Senator Bumpers is such an extraordinary 
person and such a wonderful orator that anyone who comes to the floor 
to speak after him is sort of in the position of being Tugboat Annie 
after the Queen Mary has sailed off.
  I would like to try to briefly respond to Senator Bumpers' proposal, 
and to urge my colleagues to strongly oppose it. First, let us be clear 
about what this legislation says with respect to those mayors and 
Governors about whom Senator Bumpers is concerned.
  This legislation says that if you are liable for a tax today, you are 
going to be liable if electronic commerce goes forward. You are going 
to be liable for a tax on an Internet sale just as if it was a 
traditional sale taking place today.
  What the debate is all about is that some States believe that because 
they cannot collect on mail order today, they want to go out and 
collect taxes with respect to the Internet because they see the 
Internet as the cash cow.
  Senator McCain and I and others don't feel that the problem in our 
country is that mail-order sales aren't taxed enough. We think that 
what we ought to do as we look to the next century and the new 
economy--the digital economy--is to make sure that we have 
technological neutrality. This vote that we will be having in just a 
few moments on the Bumpers amendment is essentially the first 
substantive recorded vote that we will have had with respect to the 
Internet.
  I urge my colleagues to oppose this. I will oppose it strongly, 
because I don't think the problem in our country is that mail-order 
sales aren't taxed enough. I think what we ought to do is go forward 
with this legislation as it stands now to ensure technological 
neutrality. I and others would be happy to work with Senator Dorgan and 
others to address this mail-order problem. But at the end of the day, 
let's not make the mistake with the Internet that was made with mail 
order years ago and create the same kind of fight and brawl.
  Mr. President, I yield the floor.
  Mr. McCAIN. Mr. President, I will be very brief.
  The proponents of this amendment say it is not a new tax but proper 
enforcement of an existing sales tax. This is not the case. With a few 
exceptions, States do not receive sales taxes from out-of-State mail-
order businesses, nor can they expect one under current law since this 
is a tax that has never been collected in the past.
  There is only one way to vote in favor of this amendment. Let's be 
clear. This amendment represents a very large tax increase on the 
public.
  Mr. President, this amendment permits states to require out-of-state 
mail order businesses to collect their sales taxes on purchases made by 
their residents. The Senate Finance Committee, while reviewing the 
Internet Tax Freedom Act, determined by a bipartisan vote of 13-6 that 
the Internet Tax Freedom Act is not an appropriate vehicle for the 
Senate to act on this measure. I agree with the Finance Committee's 
assessment, and I know that were my colleague and chairman of the 
Finance Committee, Senator Roth, present, he would object to the 
consideration of this measure by the Senate without a full review of 
this issue in committee hearings.
  Make no mistake, this is not simply the collection of a standardized 
interstate sales tax, as troubling as that would be. There exist 
thousands of taxing jurisdictions at the state, county, and local level 
in the U.S. Combined with the different nuances of each of these 
jurisdictions, mail order businesses will face an administrative 
nightmare fulfilling their obligations under this amendment. In fact, 
it is the large number and complexity of different tax codes which now 
require the Senate to consider a moratorium on taxation of electronic 
commerce. Certainly we cannot now say that mail-order businesses can or 
should have to attempt to deal with the same difficulties electronic 
commerce faces when it comes to sales taxes.
  Mr. President, in addition to representing an administrative burden 
to industry, this amendment would also place unacceptable burdens on 
consumers. Mail-order businesses contribute greatly to the quality of 
life for many Americans. The disabled, the elderly and others rely on 
mail-order businesses for a variety of products. Should out-of-state 
mail-order firms be required to collect sales taxes, it is entirely 
possible that consumers will find themselves having to calculate the 
proper sales tax to be remitted to the mail-order company. Given the 
complexity of taxes, it is more than likely that no small number of 
consumers will find the delivery of their purchases delayed due to 
insufficient sales tax payments. Not only will this amendment decrease 
mail order business' ability to cater to these Americans, but it will 
reduce the convenience of the mail order industry which is at the heart 
of its success.
  Proponents of this amendment have cited fairness for small businesses 
as support for passing this amendment. The underlying philosophy is 
that small businesses cannot compete with tax-free products offered by 
out-of-state mail-order businesses. Mr. President, small businesses 
have more to fear from retailers in their own communities, such as K-
Mart, Target, and Wal-Mart, than from mail-order businesses, yet small 
business continues to thrive. Most Americans are not spending their 
time shopping around for good deals on sales taxes, but they will go to 
a store two blocks away as opposed to a store a block away if they can 
get a better price on a product.
  Mr. President, this amendment is not necessary for states to collect 
sales taxes on out-of-state mail order purchases as some suggest. Many 
states have adopted use taxes to make up for supposed losses in sales 
tax revenue on goods purchased out-of-state, which require residents to 
send in sales taxes on these purchases on their own. Proponents of this 
amendment say that

[[Page S11317]]

the public is not aware of these use taxes, and therefore does not pay 
them. In reality, use taxes have not been effective because many of 
those states with use taxes are not actively enforcing them. Is this 
reason enough to place the burden of tax collection for Arkansas on 
Arizona businesses? Will Arizona businesses be able to take advantage 
of the sidewalks, roads, or public safety services in Arkansas? If 
taxing authorities are dissatisfied with their receipts from use taxes, 
they should work to devise alternative methods for informing the public 
about their existence.
  Mr. President, the Congress has worked hard to balance the federal 
budget, and we now have a budget surplus. As a result, Congress is 
working on a tax cut package the American people have every right to 
expect. This is not the time to consider new taxes on an American 
public already being nickel and dimed. Proponents of this amendment say 
it is not a new tax, but merely the proper enforcement of existing 
sales taxes. This is not the case. With a few exceptions, states do not 
receive sales taxes from out-of-state mail-order businesses, nor can 
they expect to under current law. Since this is a tax that has never 
been collected in the past, there is only one way to view a vote in 
favor of this amendment. Let us be clear, this amendment represents a 
huge tax increase on the public.
  I urge my colleagues to oppose this new tax.
  Mr. President, I ask unanimous consent to have printed in the Record 
a Wall Street Journal article of December 23, 1992.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

             [From the Wall Street Journal, Dec. 23, 1992]

              Mail-Order Taxes, Ghost of Christmas Future

                         (By Arthur P. Hall II)

       If many states have their way, consumers could lose lots of 
     shopping flexibility at Christmastime--and all year long. In 
     their increasingly desperate attempts to collect money 
     without upsetting voters, certain states want Congress to 
     help them cash in on their residents' out-of-state mail-order 
     and direct-marketing purchases. But the results would be 
     disastrous--disappointing state treasuries, depriving 
     consumers and ruining many people who depend on mail-order 
     firms for their livelihood.
       The entire direct-marketing industry exceeds $200 billion 
     annually, and includes charities and political fund-raising 
     groups. States continue to explore the taxation of consumer 
     services and advertising, but the tax assault is aimed 
     primarily at mail-order catalogs, a strong and growing sector 
     of the U.S. economy.
       A study released in October by the Pennsylvania-based WEFA 
     Group (formerly the Wharton economic consulting group) found 
     that the catalog industry, with sales of $48.8 billion, 
     contributed $39.9 billion (0.6%) to 1991's gross domestic 
     product. (According to Virginia Daly of Daly Direct Marketing 
     in Bethesda, Md., mail-order gifts account for 20% of all 
     Christmas shopping.) In 1991, the catalog industry employed 
     more than 250,000 people and generated a total employment of 
     1.17 million. The WEFA Group projects that these figures will 
     grow substantially between 1991 and 1996, with total 
     employment growing 16.6%


                          how to stifle growth

       But taxes could stifle this growth if states persuade 
     Congress to pass legislation enabling them to make out-of-
     state firms collect what is called a ``use'' tax. It is like 
     a sales tax, but it applies to transactions in which a buyer 
     and seller reside in different states. The U.S. Supreme 
     Court, in a 1967 decision, frustrated state tax collectors by 
     ruling that, without congressional approval, they could not 
     require out-of-state firms to collect the use tax when the 
     firm's only presence (''nexus'') in a state was the shipment 
     of catalogs by common carrier or U.S. mail. In sum, the court 
     required a physical presence within the taxing state.
       Ever since, tax collectors have tried to find a way around 
     the ruling. These efforts increased in intensity about 1986, 
     and included laws passed by 36 states to broaden the nexus 
     interpretation from a physical to an economic presence. The 
     Supreme Court rejected these efforts and upheld the 1967 
     precedent in its May 1992 decision on Quill Corp. v. North 
     Dakota. But the court also said that ``Congress is now free 
     to decide whether, when, and to what extent the States may 
     burden interstate mail-order concerns with a duty to collect 
     use taxes.''
       Since 1986, most states--with Bill Clinton's Arkansas being 
     among the first--have enacted use-tax statutes, enforcing 
     them with varying degrees of intensity while awaiting clear 
     direction from Congress. Rep. Jack Brooks (D., Texas) offered 
     such legislation in May 1989. The Brooks bill never passed, 
     but the 1983 political landscape offers promise for revenue-
     hungry states.
       The problem with use taxes is that they are a compliance 
     nightmare for everyone--direct marketers, consumers and 
     states. That's why states want Congress to simplify their 
     task by allowing them to force mail-order firms to collect 
     the taxes. But politicians have a bad habit of ignoring the 
     economic, consumer-choice and administrative costs associated 
     with revenue-raising measures.
       According to a 1986 study by Touche Ross, the accounting 
     firm (now Deloitte Torche), forcing mail-order firms to 
     collect state use taxes will raise their operating costs by 
     10% to 20%. And the costs get more onerous for smaller firms. 
     That's why the Brooks bill exempted firms with annual 
     revenues under $12.5 million. But this threshold still leaves 
     midsize firms ($13 million to $50 million) with huge and 
     potentially crippling costs); it also erects a serious 
     obstacle to growth. Firms surpassing the $12.5 million 
     threshold would have to buy the equipment and hire the staff 
     to comply with 46 different state tax laws, and absorb or 
     pass on the cost of collecting use taxes by mail. These costs 
     would be six times greater than collecting sales taxes at the 
     point of retail sale.
       The fact that more than 50% of mail-order customers still 
     pay by check means that catalog sellers would have to include 
     consumers in the use-tax compliance process. Having to 
     dedicate a page or more of a catalog to reciting state tax 
     laws would of course be costly. But the problem doesn't stop 
     there. Picture a dear grandmother who gleefully picks out 
     Christmas sweaters for her grandchildren, scattered across 
     several states, and then has to spend the afternoon 
     calculating her tax bill. Ho-ho-ho.
       Consumer choice and jobs, however, would suffer the most 
     from a federal use-tax law. Midsize mail-order firms 
     increasingly give greater choice and flexibility to rural and 
     elderly consumers. And these firms often establish themselves 
     in market niches, offering unique products that most local 
     markets couldn't support.
       Moreover, mail-order firms tend to proliferate in rural 
     areas, providing a core economic base. For example, Lands' 
     End employs 3,700 people in Dodgeville, Wis., more than the 
     population of the entire town. L.I. Bean, in Freeport, Maine, 
     employs around 4,000 At both firms, the numbers swell by 25% 
     in the months leading up to Christmas, Orvis Co. (Roanoke, 
     Va.) employs 400, the Collin Street Bakery (Corsicana, Texas) 
     employs 700, and George W. Park Seed Co. (Greenwood, S.C.) 
     employs 600. If federal use-tax legislation passes, says 
     Leonard Park of George W. Park Seed, ``our company is going 
     to get creamed, and a lot of traditional American families 
     will suffer.''


                             A Pitiful Sum

       This suffering will occur for the purpose of ``enhancing'' 
     state revenues--but only by a pittance. (With administrative 
     costs included, some states would even lose money.) Total 
     state revenues for 1991 equaled $661.4 billion and revenue 
     from general sales taxes equaled $103.2 billion. The Advisory 
     Commission on Intergovernmental Relations--a study group that 
     monitors taxation on federal, state and local levels--
     estimated potential 1991 use-tax revenue at only $2.08 
     billion. And even this estimate is too generous.
       One should more rigorously adjust the potential tax base 
     for lost jobs, lost mail-order sales, use-tax exemptions, 
     firms that already pay sales taxes because of physical 
     presence in a state, lost revenue from firms that service the 
     catalog industry, services, and state administrative costs. 
     When these adjustments are made, one discovers only about 
     $500 million in potential revenue, about 0.5% of general 
     sales tax revenues. Even Scrooge wouldn't try to collect that 
     pitiful sum.
       Taxing the thriving mail-order industry is a thoroughly bad 
     idea. Let's hope its time has not come.

  Ms. SNOWE. Mr. President, I rise in opposition to the amendment 
offered by my distinguished colleague from Arkansas, Senator Bumpers, 
because I believe it is unnecessary and could prove detrimental to mail 
order companies.
  For these reasons, I urge that my colleagues reject this amendment, 
just as they rejected it at the start of the 104th Congress by an 
overwhelming bipartisan vote of 73 to 25.
  Mr. President, I do not believe that the bill currently before us--
the Internet Tax Freedom Bill--is the appropriate place for the Senate 
to consider the imposition of new taxes. This amendment contains major 
compliance and tax issues that should be properly considered and 
reported from the Finance Committee before being brought to a vote on 
the floor.
  In addition, my strong opposition to this amendment stems from my 
belief that this measure will be detrimental to the mail-order industry 
nationally, as well as posing a stark threat to a company whose quality 
craftsmanship, durable outdoor products, and legendary commitment to 
excellence has made it the pride of my home state of Maine--L.L. Bean 
of Freeport.
  L.L. Bean was established 86 years ago as a small, Maine-based store 
catering to the surrounding community and a limited number of mail-
order customers. In 1912, who would have

[[Page S11318]]

guessed that someday L.L. Bean would rise to become one of the premier 
international manufacturers and marketers of outdoor gear and other 
goods? But by focusing on unquestioning customer satisfaction and 
unparalleled quality products, L.L. Bean succeeded in bringing to our 
state and the local community many jobs and much pride.
  In Freeport alone, 4,000 people are employed by L.L. Bean full-time 
while over 11,000 are employed part-time during the Christmas holidays, 
making it the third largest employer in the State of Maine. At the same 
time, L.L. Bean's retail store brings to Freeport and its surrounding 
communities 4 million customers every year, and attracts an additional 
4 million catalog customers annually--a powerful generator of tourism 
and business for the entire state.
  Mr. President, the amendment offered by my colleague, Senator 
Bumpers, would threaten the present and future job prospects of 
Freeport's residents needlessly, as well as any other community that 
employs individuals in the mail-order industry.
  And even as this amendment would prove harmful in Maine and across 
the nation, the irony is that this amendment is not even necessary to 
accomplish the goal being sought by my friend from Arkansas.
  Specifically, states already have the ability to collect sales taxes, 
just as Maine has demonstrated, and can easily collect these taxes 
through the voluntary income tax.
  In Maine, taxpayers are given the option on their personal income tax 
form of either stating the actual amount of sales tax due for out-of-
state purchases in a given year, or entering a flat tax amount based on 
a percentage of the taxpayer's income.
  The bottom line is that states have the ability to collect these 
taxes--they do not need Federal legislation to do so.
  Mr. President, the State of Maine has proven that the legislation 
being proposed by the Senator from Arkansas is not necessary. I urge my 
colleagues join me in opposing this proposal, just as they opposed it 
four years ago. Thank you, Mr. President. I yield the floor.
  Mr. McCAIN. Mr. President, on January 19, 1995, this amendment was 
voted down by a vote of 73 to 25. I anticipate the same vote.
  Mr. BUMPERS. Will the Senator yield the floor?
  Mr. McCAIN. Mr. President, I yield the floor.
  Mr. BUMPERS. Mr. President, how much time remains?
  The PRESIDING OFFICER. The Senator from Arizona has 1 minute left; 
2\1/2\ minutes remain for the Senator from Arkansas.
  Mr. BUMPERS. Mr. President, I have lost this amendment several times.
  As you have heard me say previously, this is the seventh or eighth 
year that I have offered this proposal. Every year the specious, 
absolutely false arguments are made that people don't want any more 
taxes and that this is a new tax. This is nothing more than a 
continuation of the unfunded mandates bill we passed here in 1995.
  All my amendment does is say to the States, as the Supreme Court in 
1992 said, if Congress gives the States authority to tax sales by mail-
order catalog houses, the States may take the opportunity to make them 
pay it.
  You are talking about the Chamber of Commerce types who go to work at 
8 o'clock in Little Rock, AR, in Allentown, PA, and Nashville, TN, and 
work all day long and collect sales taxes on every dime of every 
merchant on all the merchandise they sell; and some guy has a big 
warehouse across the State line and can ship that same merchandise into 
Tennessee, Arkansas and Pennsylvania without even collecting a sales 
tax. The Governors and the mayors and the municipalities, the council 
of shopping centers, the council of State governments, why do you think 
they are for this? Because we are saying, if you want to. If you don't 
want to, fine, don't do it. But we are saying you now have the right 
that the Supreme Court gave you to require these people who fill your 
landfills with catalogs to make them collect a tax just like Main 
Street merchants do.

  Why do you think they are for it? Because they see their tax base 
disappearing with Internet sales and mail-order sales.
  I ask every Member of this body before you cast your vote, ask 
yourself this question: What is going to happen to this country when 
the schools start closing because the tax base is gone? One of the 
biggest problems mayors have right now is with their police forces, 
their fire departments. Community schools are strapped. And all we are 
saying is if you want to collect a sales tax on out-of-State sales, you 
can. But this bill doesn't mandate it, doesn't require it. It simply 
gives you the right, and that is the reason all these organizations are 
for it. That is the reason the New York Times is for it.
  I yield the floor.
  The PRESIDING OFFICER. The Senator's time has expired.
  Mr. DORGAN addressed the Chair.
  The PRESIDING OFFICER. The Senator from North Dakota.
  Mr. DORGAN. I ask unanimous consent to speak for 1 minute.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DORGAN. I thank the Chair.
  Mr. President, let me just add to the comments of the Senator from 
Arkansas. This is a toothless argument that doesn't even wear well with 
age--that this is a new tax. I have heard that for 8 years. There is 
simply no demonstration of truth to that argument. It is demonstrably 
untrue. This is not a new tax. The tax already exists on that form of 
commerce. It is not now being paid. The Senator from Arkansas does not 
propose to change the fundamental question of whether that transaction 
is taxed or not taxed.
  So when I hear comments from friends of mine saying that this is a 
new tax, I say they are wrong, dead wrong and the facts demonstrate 
that. So I hope Senators will support the Senator from Arkansas. I 
think he has offered a good amendment.
  Mr. McCAIN. Mr. President, I move to table the Bumpers amendment and 
ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There appears to be a sufficient second.
  The yeas and nays were ordered.
  The PRESIDING OFFICER. The question is on agreeing to the motion to 
table the amendment. The yeas and nays have been ordered. The clerk 
will call the roll.
  The assistant legislative clerk called the roll.
  Mr. NICKLES. I announce that the Senator from Missouri, (Mr. Bond) is 
necessarily absent.
  Mr.  FORD. I  announce that the Senator from Ohio (Mr. Glenn), the 
Senator from South Carolina (Mr. Hollings), the Senator from Nebraska 
(Mr. Kerrey), the Senator from Illinois (Ms. Moseley-Braun), are 
necessarily absent.
  The PRESIDING OFFICER (Mr. Grams). Are there any other Senators in 
the Chamber who desire to vote?
  The result was announced--yeas 66, nays 29, as follows:

                      [Rollcall Vote No. 296 Leg.]

                                YEAS--66

     Abraham
     Allard
     Ashcroft
     Baucus
     Biden
     Boxer
     Brownback
     Burns
     Campbell
     Chafee
     Coats
     Collins
     Coverdell
     Craig
     D'Amato
     Daschle
     DeWine
     Dodd
     Domenici
     Durbin
     Faircloth
     Feingold
     Feinstein
     Frist
     Gramm
     Grams
     Grassley
     Gregg
     Hagel
     Hatch
     Helms
     Hutchinson
     Hutchison
     Inhofe
     Jeffords
     Kempthorne
     Kerry
     Kohl
     Kyl
     Lautenberg
     Leahy
     Lieberman
     Lott
     Lugar
     Mack
     McCain
     McConnell
     Murkowski
     Murray
     Nickles
     Reid
     Robb
     Roth
     Santorum
     Sessions
     Shelby
     Smith (NH)
     Smith (OR)
     Snowe
     Stevens
     Thomas
     Thompson
     Thurmond
     Torricelli
     Warner
     Wyden

                                NAYS--29

     Akaka
     Bennett
     Bingaman
     Breaux
     Bryan
     Bumpers
     Byrd
     Cleland
     Cochran
     Conrad
     Dorgan
     Enzi
     Ford
     Gorton
     Graham
     Harkin
     Inouye
     Johnson
     Kennedy
     Landrieu
     Levin
     Mikulski
     Moynihan
     Reed
     Roberts
     Rockefeller
     Sarbanes
     Specter
     Wellstone

                             NOT VOTING--5

     Bond
     Glenn
     Hollings
     Kerrey
     Moseley-Braun
  The motion to lay on the table the amendment (No. 3677) was agreed 
to.




                          ____________________