[Congressional Record Volume 144, Number 141 (Friday, October 9, 1998)]
[Senate]
[Page S12220]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        INTERNET TAX FREEDOM ACT

 Mr. CLELAND. Mr. President, the Internet, as an growing form 
of communication, commerce, and information exchange, is a powerful 
medium for all who are able to take advantage of the opportunities it 
presents. The initial version of S. 442, the Internet Tax Freedom Act, 
would, in my opinion, have provided this already powerful tool with 
even more competitive advantages. Frankly, I believed that the original 
version was too one-sided in aiding Internet-based businesses at the 
expense of other interests. However, I was very pleased with the 
willingness of the authors of this bill to address the concerns raised 
by state and local governments as well as ``Main Street'' business 
owners in such a way that I was able to support the final bill.
  The final version of S. 442 contains several positive features. Among 
those is the inclusion of the Hutchinson amendment, which will allow 
the Commission created by S. 442 to examine the impact of all types of 
remote sales. Every year states lose billions of dollars in revenue 
from remote sales, most recently via the Internet but also in catalog 
sales. The Hutchinson amendment, which is faithful to the 
recommendation of the Finance Committee, makes a proper and relevant 
expansion of the mandate of the Commission.
  Not all states and municipalities have imposed taxes on the Internet. 
However, those that have should not have their Constitutional right to 
impose these taxes stripped away by Congress. The grandfathering of 
existing taxes on electronic commerce contained in the final version of 
S. 442, is consistent with our federalist system and balances the needs 
of interstate commerce with the proper role of states and 
municipalities.
  Although these and other positive provisions in S. 442 allowed me to 
support the overall bill, I am hopeful that the initial concerns I had 
with S. 442 will not arise again when the three year moratorium 
established by the bill expires. The purpose of this temporary 
moratorium is to allow government and industry representatives time to 
work together to decide the rules for electronic commerce. However, S. 
442 offers no guarantee that the moratorium will not be extended after 
the three year period. I supported Senator Graham's amendment that 
would have required a super majority to extend the moratorium, but 
unfortunately, it was defeated.
  There is a precedent of another ``temporary'' moratorium that never 
expired. In 1959, Congress enacted Public Law 86-272, which limited 
state corporate income tax collection on out-of-state corporations. 
Like the goal of the Commission created by S. 442, a moratorium was 
imposed to try to negotiate a uniform standard with regard to the tax 
treatment of out-of-state corporations. The results of P.L. 86-272 was 
an increase in litigation and a decrease in state and local tax 
revenue. This precedent explains state and local leaders' skepticism 
about a temporary Internet tax moratorium. It is my hope that when the 
three year moratorium expires, Congress will not extend the moratorium. 
The experience of P.L. 86-272 does not need to be repeated.
  I fear that a continuation of the moratorium would tilt the scales 
heavily in favor electronic commerce at the expense of local ``Main 
Street'' businesses. Internet sales should not receive any privileges 
that are not available to other forms of commerce. Business competitors 
of Internet-based firms should not have to experience such legalized 
discrimination.
  Although the use of computers will certainly continue to grow, there 
will always be consumers who will not have access to the Internet. If 
attempts are made to extend the three year moratorium, Congress will, 
in effect, be offering a tax break to those who can afford a computer 
and Internet access to the detriment of those who cannot.
  I wanted to take this opportunity to applaud the efforts that have 
been made to address this rapidly emerging form of trade, and I believe 
that the compromise version of S. 442 is an appropriate balance that 
will give the Commission time to make a recommendation while not 
greatly interfering with interstate commerce. However, I urge caution 
by my colleagues, when we revisit this issue in three years, that in 
our zeal to encourage the growth of the Internet and all the promise it 
offers we should not compromise the needs of our states, cities, towns, 
and local merchants. I pledge my efforts to achieve that goal.

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