[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
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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.
____________________