[Congressional Record Volume 144, Number 139 (Wednesday, October 7, 1998)]
[Senate]
[Pages S11688-S11691]
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.


              Amendment No. 3719, as modified, as amended

  Mr. McCAIN. Mr. President, I ask unanimous consent that there be 15 
minutes, with 10 minutes on this side, controlled by the Senator from 
Alaska, and 5 minutes controlled by the Senator from North Dakota, that 
no second-degree amendments be in order, and immediately following 
that, there be a vote on the Murkowski tabling motion.
  The PRESIDING OFFICER. The question will first come on the first-
degree amendment.
  Mr. McCAIN. Mr. President, I believe Senator Murkowski will be 
seeking to table the underlying amendment.
  Mr. MURKOWSKI addressed the Chair.
  The PRESIDING OFFICER. The Senator from Alaska is recognized.
  Mr. McCAIN. Mr. President, I repeat the request.
  The PRESIDING OFFICER. Is there objection?
  Mr. GRAMM. Mr. President, I didn't hear the request. Can I hear it 
again?
  Mr. McCAIN. It is that there be 15 minutes on a Murkowski tabling 
motion, with 10 minutes under the control of the Senator from Alaska, 5 
minutes under the control of the Senator from North Dakota, with no 
intervening second-degree amendments, immediately followed by a vote.
  Mr. GRAMM. No objection.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. MURKOWSKI addressed the Chair.
  The PRESIDING OFFICER. The Senator from Alaska is recognized.
  Mr. MURKOWSKI. Mr. President I rise in opposition to the amendment 
being offered to grandfather existing taxes on Internet services.
  This amendment undermines the fundamental integrity of the underlying 
bill because all state and local taxing jurisdictions would not be 
under the exact same moratorium. It rewards those states and 
municipalities that raced to set up discriminatory taxes on Internet 
services and places them in a better position to raise revenue than 
those states that have chosen not to act.
  More importantly, it sets the precedent that some states, but not all 
states, can levy taxes that harm interstate commerce. This amendment 
makes the Internet Tax Moratorium a piece-meal moratorium, not a real 
moratorium.
  I ask my colleagues to consider why we are considering this Internet 
tax moratorium. As all of us recognize, the Internet is a massive 
global network that spans not only every state in the Union, but 
international borders. As the Commerce committee found, Internet access 
services are inherently a matter of interstate and foreign commerce 
within the jurisdiction of the United States Congress. In fact, it has 
been estimated that if the Congress does not make a policy decision 
regarding taxation of Internet services, more than 30,000 separate 
taxing jurisdictions within the United States could establish their own 
taxes on Internet transactions.
  Because of the chaos that would ensue, we have decided to place a 
halt on Internet taxes and allow a commission to study this issue and 
make recommendations to the Congress. Yet the amendment that the 
Senator from Oregon proposes would reward those jurisdictions that have 
already decided to tax Internet services. Why should we grandfather 
those jurisdictions?
  If it is appropriate for states and localities to impose taxes on 
Internet services than all states should be permitted to adopt such 
taxes. Alaska should be given that opportunity just as much as North 
Dakota and South Dakota. But under the Internet Tax Moratorium 
legislation, my state does not have that option but the Dakotas can 
continue their taxes because they adopted those taxes prior to this 
moratorium.
  And if it is not appropriate for states and localities to impose 
taxes on Internet services, than not states nor localities should be 
permitted to adopt these taxes.
  I believe this amendment is not only discriminatory but undermines 
the fundamental idea underlying this bill. As I noted earlier, the 
Internet is inherently about Interstate Commerce and we in Congress are 
about to make a decision that no local taxes should be imposed on 
Internet services until Congress receives the Commission's 
recommendations. I believe we should make this moratorium uniform, not 
piece-meal as the Senator from Oregon proposes.
  Otherwise, we are encouraging every state in the union to rush to the 
state legislature every time a new technology comes along and adopt a 
taxing scheme on the new technology, secure

[[Page S11689]]

in the knowledge that should Congress decide to impose a moratorium on 
such a new tax, that state's taxes will be grandfathered.
  Moreover, there is no rational basis to grandfather these state and 
local taxes on what everyone agrees is interstate commerce. We have 
asked a Commission of experts to make recommendations regarding 
Internet taxes. Although I cannot pre-judge what the Commission will 
recommend, it is probable that the Commission will make three 
recommendations. It will make a decision that state and local taxation 
of Internet services are appropriate or inappropriate. It may decide 
that some taxes, such as taxes on ``pipeline'' services like Erols or 
value-added online services like America Online are appropriate but 
that taxes on interstate product sales on the Internet are 
inappropriate.
  What is certain is that the Commission will not recommend that the 
only Internet taxes that are appropriate are those that are levied by 
the states that are proposed to be grandfathered. That would make no 
sense and would probably be unconstitutional. For that reason alone, we 
should not permit this grandfather.
  Mr. President, one of the most important reasons I believe we should 
not grandfather any of the Internet taxes is because a decision we make 
on grandfathering will send a signal to our trading partners that if 
they adopt taxes on Internet commerce today, those taxes will likely be 
grandfathered if and when an international agreement on taxation of 
Internet commerce is reached in the future.
  Why shouldn't Brazil or Germany or Canada establish taxes today on 
Internet commerce and then claim that since these taxes were adopted 
prior to an international agreement, they should be grandfathered just 
like the United States grandfathered similar taxes?
  Mr. President, there is ample precedent for such a scenario. Many of 
the tariff and non-tariff barriers that the United States has 
confronted in the past 50 years have covered practices that were 
insulated by the original GATT grandfathering rules that were adopted 
more than 50 years ago. In fact, there have been a number of instances 
where our foreign trading partners have used the GATT grandfather 
clause to defend measures that would otherwise violate our GATT rights. 
A number of those involved foreign tax regimes.
  For example, the European Union relied on the GATT grandfather clause 
to defend their system of territorial taxation and income shifting 
rules that clearly constituted an illegal export subsidy. Similarly, 
Brazil used the grandfather clause to defend internal taxes of general 
application (i.e., sales taxes) that discriminated against goods 
imported from other GATT members. And Canada relied on the grandfather 
clause to defend its interprovincial restrictions on the sale of beer 
and other malt beverages, which included discriminatory charges on 
imports of competing products from the United States.
  Mr. President, the Internet as a means of communication and commerce 
is in its infancy. Commerce on the Internet is projected to grow by 
several thousand percent in the next five years. And who stands to 
benefit the most from that growth? Companies based in the United States 
will be the largest beneficiaries. I think there can be no doubt about 
that.
  We in the United States invented the Internet. We have been the first 
country to begin to exploit its benefits. We are leading the world in 
Internet commerce and the world is watching everything we do and trying 
to figure out how to prevent American domination of this new medium.
  One way to slow American domination of the Internet is for foreign 
countries to begin to establish taxing regimes on products and 
information generated from the United States. It is not hard to imagine 
our foreign trading partners developing taxing schemes designed to 
protect their domestic manufacturers from competition from more 
efficient American competitors selling in their country via the 
Internet. Nor is it difficult to imagine that some of the more 
repressive regimes in the world might want to come up with punitive 
access taxes that functionally prevent their citizens from reading 
American on-line newspapers and magazines. In the name of ``cultural 
sovereignty,'' I can imagine that some countries will adopt special 
taxing regimes to restrict access to Internet web pages that are in 
English.
  Mr. President, the precedent we set by grandfathering Internet taxes 
currently in place will be closely watched by our trading partners. 
They will follow our model because the United States has established 
all of the standards and protocols for the Internet.
  We should send a message to our trading partners that we will not 
grandfather any taxes on Internet commerce. Unless we do that, I fear 
that when our negotiators sit down and attempt to negotiate away 
discriminatory foreign taxes on Internet services, our foreign trading 
partners will use the grandfather model in this bill as a reason their 
taxing regime should be maintained in place. That is surely not the 
precedent we want to set.
  Finally, Mr. President, if we table this amendment we will ultimately 
not be voting on whether the moratorium should be three years or four 
years. The Senate has already spoken on this issue and if the 
grandfathering amendment is tabled, the Chairman of the Committee will 
certainly offer another amendment that we can accept that will extend 
the moratorium for four years.
  I move to table the amendment on grandfathering state Internet taxes.
  Mr. MACK. Mr. President, I oppose this amendment which would allow 
some states to tax the Internet but not others. The moratorium on 
Internet taxation must be uniform, applying equally to all states and 
all local taxing jurisdictions without exception.
  Congress is taking an extraordinary, though not unprecedented, step 
in preempting a taxing power of the states. The people of the United 
States, through the Constitution, charge Congress with the 
responsibility of ensuring that states do not interfere with interstate 
commerce. This power is rarely exercised in the context of taxation, 
and is a power that we take very seriously.
  Use of this extraordinary power is required to prevent the heavy 
hands of government from stifling the economic growth potential of 
Internet commerce. We have now just a glimpse of the future of 
commerce, and a complete revolution in the way people transact business 
is within sight. We are on the threshold of exciting times, in which 
information about products will move quicker and farther than ever 
imagined, in which the elderly, the handicapped, and people living in 
remote rural areas can participate in world markets without ever 
leaving their homes. A moratorium is necessary to prevent the taxing 
authorities of 50 states, over 6,000 localities, and the federal 
government from taking near-sighted actions that jeopardize this future 
of commerce.
  A threat to interstate commerce so severe as to require a national 
moratorium cannot be tolerated in any state. If Congress were to 
grandfather those states that have already imposed Internet taxes, we 
would be setting a terrible precedent. This ``Early Bird Special'' 
exception gives states the incentive to rush to impose new taxes on new 
technologies. This is not the kind of race we want to encourage.
  And if Congress can impose a moratorium on some states but not 
others, will future Congresses attempt to disadvantage individual 
states in this manner? The defenders of a grandfather clause cast their 
argument as one of states' rights. But establishing the principle that 
a moratorium must apply equally to all states protect states from 
unwarranted infringements upon their power, by preventing the federal 
government from isolating a minority of states for adverse treatment. 
And I should also point out that states do not have the right to 
interfere with interstate commerce--the power to regulate interstate 
commerce was delegated to the national government, not retained by the 
states.
  The United States should set a strong example and preempt all 
Internet taxes until a rational, national approach to Internet taxation 
is developed. If we fail to do so, we undermine attempts to persuade 
our trading partners that barriers to global electronic commerce should 
be removed. We have the opportunity to lead the world in the area of 
Internet commerce, and we should make our cause the cause of freedom.

[[Page S11690]]

  Mr. President, I urge my colleagues to reject this amendment.
  Mr. DORGAN addressed the Chair.
  The PRESIDING OFFICER. The Chair recognizes the Senator from North 
Dakota.
  Mr. DORGAN. Mr. President, I rise in opposition to the efforts by the 
Senator from Alaska. My understanding is that he is seeking to table 
the underlying first-degree amendment, the McCain amendment. The McCain 
amendment includes the grandfather provision which preserves the 
existing Internet access taxes. In my judgment, this makes the 
moratorium a forward-looking moratorium, and will not preempt existing 
taxes.
  It also deals with State and local taxing authorities by including a 
State and local tax savings provision, which makes it clear that no 
other State or local tax will be affected. In other words, it protects 
against the unintended consequences that may well occur unless we have 
that savings clause.
  I really think that it is important that we not support the motion 
offered by the Senator from Alaska.
  The third provision I want to mention in the first-degree amendment 
that he is attempting to table is a provision ensuring that this 
moratorium will not affect any pending or existing liabilities. 
Currently there are companies that may have failed to pay some taxes 
that would have a current liability under current valid existing laws, 
and we would not want this moratorium to have the unintended 
consequence of interrupting those liabilities either.
  As I understand it, we have a first-degree amendment, and now a 
motion to table that. I hope that the motion to table will not prevail. 
I will vote against it. I will be, by that vote, supporting the 
underlying first-degree McCain amendment.
  Mr. McCAIN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Arizona is recognized.
  Mr. McCAIN. Mr. President, I suggest the absence of a quorum.
  the PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. McCAIN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. McCAIN. Has all time expired?
  The PRESIDING OFFICER. It has not expired.
  Mr. MURKOWSKI. Mr. President, I yield all time back that's remaining 
on our side. It would be my intention when all time is yielded to ask 
for the yeas and nays. Excuse me, Mr. President. It would be my 
intention to move to table the pending amendment when all time is 
expired.
  The PRESIDING OFFICER. Does the Senator from North Dakota yield back 
his time?
  Mr. DORGAN. Mr. President, I make a point of order that a quorum is 
not present.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. McCAIN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  Mr. DORGAN. I object.
  The PRESIDING OFFICER. Objection is heard.
  The legislative clerk continued with the call of the roll.
  Mr. McCAIN. For the convenience of Senators who have plans this 
evening and were told that we would have a vote, I would ask unanimous 
consent that further proceedings under the quorum call be rescinded.
  The PRESIDING OFFICER. Is there objection?
  Mr. DORGAN. I object.
  The PRESIDING OFFICER. There is objection.
  The legislative clerk continued with the call of the roll.
  Mr. McCAIN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. McCAIN. Mr. President, I ask to be recognized.
  The PRESIDING OFFICER. The Senator from Arizona.
  Mr. McCAIN. Mr. President, we obviously have a problem. The Senator 
from Florida is insisting on a point of order that will basically gut 
this legislation. I want to go ahead and vote on the Murkowski 
amendment. If the Senator from Florida wants to destroy this bill, 
which is supported by literally everyone except him, he is free to do 
that.
  Mr. President, how much time remains?
  The PRESIDING OFFICER. All time has expired.
  Mr. GRAHAM addressed the Chair.
  Mr. McCAIN. All time has expired?
  Mr. GRAHAM. Point of personal privilege.
  The PRESIDING OFFICER. The Senator from Florida.
  Mr. GRAHAM. Mr. President, I am sorry, my good friend from Arizona 
has on several previous occasions made statements that have become, I 
think, excessively personal and not factually correct.
  I am prepared to vote on this bill right now, and I will vote for the 
bill in its current form. What the issue is, is offering an amendment 
that I question as to its germanity to this bill and that I might raise 
a point of order on that germanity. I don't consider that to be an 
inappropriate or even a particularly hostile act. That is a matter of 
the rules of the Senate. It either is or is not germane in this 
postcloture environment.
  I do not accept the characterization that I am, in some malicious 
way, standing in the way of the bill. I am perfectly prepared to vote 
at this time.
  The PRESIDING OFFICER. All time has expired.
  Mr. MURKOWSKI. I move to table the amendment and ask for the yeas and 
nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  The PRESIDING OFFICER. The question is on agreeing to the motion to 
lay on the table amendment No. 3719, as modified, as amended. The yeas 
and nays have been ordered. The clerk will call the roll.
  The bill clerk called the roll.
  Mr. NICKLES. I announce that the Senator from Pennsylvania (Mr. 
Specter) is necessarily absent.
  Mr. FORD. I announce that the Senator from Ohio (Mr. Glenn) and the 
Senator from South Carolina (Mr. Hollings) are necessarily absent.
  The result was announced--yeas 28, nays 69, as follows:

                      [Rollcall Vote No. 306 Leg.]

                                YEAS--28

     Ashcroft
     Campbell
     Cochran
     Collins
     Coverdell
     D'Amato
     Faircloth
     Gramm
     Grams
     Grassley
     Gregg
     Hagel
     Helms
     Hutchinson
     Hutchison
     Jeffords
     Lott
     Mack
     McConnell
     Murkowski
     Nickles
     Roth
     Santorum
     Shelby
     Smith (NH)
     Stevens
     Thomas
     Torricelli

                                NAYS--69

     Abraham
     Akaka
     Allard
     Baucus
     Bennett
     Biden
     Bingaman
     Bond
     Boxer
     Breaux
     Brownback
     Bryan
     Bumpers
     Burns
     Byrd
     Chafee
     Cleland
     Coats
     Conrad
     Craig
     Daschle
     DeWine
     Dodd
     Domenici
     Dorgan
     Durbin
     Enzi
     Feingold
     Feinstein
     Ford
     Frist
     Gorton
     Graham
     Harkin
     Hatch
     Inhofe
     Inouye
     Johnson
     Kempthorne
     Kennedy
     Kerrey
     Kerry
     Kohl
     Kyl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lugar
     McCain
     Mikulski
     Moseley-Braun
     Moynihan
     Murray
     Reed
     Reid
     Robb
     Roberts
     Rockefeller
     Sarbanes
     Sessions
     Smith (OR)
     Snowe
     Thompson
     Thurmond
     Warner
     Wellstone
     Wyden

                             NOT VOTING--3

     Glenn
     Hollings
     Specter
  The motion to lay on the table the amendment (No. 3719), as modified, 
as amended, was rejected.
  Mr. McCAIN addressed the Chair.
  The PRESIDING OFFICER (Mr. Brownback). The Senator from Arizona.
  Mr. McCAIN. Mr. President, first of all, let me say for my colleagues 
where we are on this bill.
  We believe that we had an agreement that there would be this vote on 
the Murkowski amendment to table, and then we would proceed to adopt a 
previously agreed to amendment that had been agreed to by the Senator 
from North Dakota who has been managing the bill and others that have 
been involved in the legislation. Apparently, that was not agreed to by 
the Senator

[[Page S11691]]

from Florida who intends to at least at this time challenge on the 
issue of germaneness the amendment that the Senator from North Dakota, 
the Senator from Oregon, I, the Senator from Wyoming, and others had 
agreed to, which has to do with the definition of what are 
discriminatory taxes.
  This, obviously, germane point of order would carry, or there is a 
likelihood that it would. That would reduce the effectiveness or the 
impact of this bill to the point where it would be nearly meaningless.
  The Senator from Florida has told me that he will work overnight with 
us and with others to try to craft some agreement or relook at the 
entire issue. I hope that he will do so.
  After the vote at 11 tomorrow on VA-HUD, I will then propose 
amendment No. 3711. At that time, if the Senator from Florida still 
wishes to, obviously he can challenge the amendment on point of order 
concerning whether the amendment is germane or not.
  Mr. President, I think everybody realizes how important this 
legislation is. I would very much hate to see it derailed at this point 
in time.
  But the amendment, 3711, is vital to this legislation. Some may ask 
why we didn't propose it earlier. That is because it was part of a 
package of negotiation that we were in with the Senator from North 
Dakota, and others.
  I respect the right of the Senator from Florida to object on 
germaneness grounds. That is his right as a Senator. I do not challenge 
that.
  Mr. WYDEN. Will the Senator yield?
  Mr. McCAIN. I ask unanimous consent to yield to the Senator from 
Oregon without losing my right to the floor.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. WYDEN. I will be very brief, I say to the chairman and 
colleagues. The hour is late.
  All we seek to do is to have technological neutrality. We are not 
going to tax catalogs. We also don't want to tax web sites. That is all 
this is about--preventing that kind of discriminatory tax.
  I thank the chairman for yielding.
  Mr. McCAIN. Mr. President, these things happen as we consider 
legislation. There are very strongly held views on this issue, 
especially by the Senator from Florida who, as a former Governor, 
understands the impact of these issues on his State. I understand that 
and appreciate that. But I want to be clear that my interpretation and 
that of the Senator from Oregon and the proponents of this legislation 
are that if we do not allow the amendment 3711, then the legislation 
itself would be rendered largely meaningless.

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