[Congressional Record Volume 145, Number 124 (Wednesday, September 22, 1999)]
[Senate]
[Pages S11255-S11256]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LOTT (for Mr. McCain):
  S. 1611. A bill to amend the Internet Tax Freedom Act to broaden its 
scope and make the moratorium permanent, and for other purposes; to the 
Committee on Commerce, Science, and Transportation.


                    INTERNET TAX FREEDOM ACT OF 1999

  Mr. McCAIN. Mr. President, I am pleased to introduce legislation 
today which will ensure that Internet commerce remains free from 
burdensome, anti-consumer taxation. Simply, this bill would make 
permanent the moratorium on sales and use taxes for e-commerce, and 
would encourage the Administration to urge our world trading partners 
to do the same.
  I believed that this was the right approach last year. However, 
others were concerned about the impact on so-called ``main street 
business'' if such a prohibition against taxation of e-commerce was 
implemented. Therefore, I agreed to a temporary moratorium to allow 
more information to be gathered and those issues to be further 
considered. I now believe that additional information and further 
analysis of

[[Page S11256]]

Internet taxation issues confirms that indeed a complete moratorium is 
the right approach, and we should act now to protect the engine of our 
economy from unnecessary regulation and taxation.
  In addition to the discussion here in the United States, protection 
of the Internet against international tariffs is also a topic of 
interest to our trade partners. It is important for us to set the tone 
for discussion with the international Internet community by 
establishing the Internet as a world-wide ``tax-free zone.''
  Conslusions included in a recent study completed by the respected 
auditing and consulting firm Ernst & Young supports passage of this 
legislation. The report found that the total sales and use taxes not 
collected by state and local governments from Internet e-commerce 
transactions amounted to only ``one-tenth of one percent of total state 
and local sales and use tax collections.''
  Further, Ernst & Young determined that the small effect of commerce 
transaction on sales and use tax revenues is due to several factors, 
including the fact that ``an estimated 80% of current commerce is 
business-to-business sales that are either not subject to sales and use 
taxes or are effectively subject to use tax payments by in-state 
business purchasers,'' ``an estimated 63 percent of e-commerce sales 
are for intangible services, such as travel and financial services, or 
exempt products, such as groceries and prescription drugs'' which are 
not subject to tax in most states.
  As a result, ``. . . only 13% of total e-commerce retail sale have 
potential sales and use tax collection issues.'' Thus, the nearly 
infinitesimal effect on local revenues is not causing a financial 
crisis for either states or local communities.
  Mr. President, what is clear is that the issues raised in relation to 
e-commerce transactions are really broader policy issues related to a 
fair and equitable tax policy in this country. Debate on this larger 
issue needs to take place. The discussion includes not just Internet 
sales or even catalog sales, but all of the ramifications of taxing 
sales of goods across state and international boundaries.
  We must look at the costs to small businesses of administering 
different tax policies for each location in which it conducts business. 
We need to look at the effects of taxation on consumers. And, we need 
to consider how taxes affect the United States' position as the world 
leader in technology application.
  I look forward to the report in April from the panel commissioned 
last year by Congress to explore these issues. Recent media accounts 
suggest that they may not reach agreement on a plan to propose to 
Congress. I think it is important to move forward on ensuring that the 
default position absent a consensus proposal is not to lift the 
moratorium, but to place the burden of proof on those advocating 
taxation of e-commerce. This places the burden on those who support 
taxation to provide both the rationale and a workable methodology. I 
will be skeptical of both, but invite them to make their case and allow 
the debate. This bill ensure, however, that we don't provide an 
incentive for inaction. This bill confirms that the right answer is to 
not tax unless there is a good reason to, and unless there is a fair 
mechanism for doing so.
  I look forward to debate on what is a fair tax system in the United 
States, at both the national and state levels. However, while we 
continue that debate, we must also ensure that we do not perpetuate the 
problems currently ingrained in our tax system by applying them to the 
Internet.
  Mr. President, I ask unanimous consent that the text of the 
legislation be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1611

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. MORATORIUM MADE PERMANENT; SCOPE.

       Section 1101(a) of the Internet Tax Freedom Act is 
     amended--
       (1) by striking ``during the period beginning on October 1, 
     1998, and ending 3 years after the date of the enactment of 
     this Act--'' 
     and inserting ``after September 30, 1998:'';
       (2) by striking ``and'' after the semicolon in paragraph 
     (1);
       (3) redesignating paragraph (2) as paragraph (3); and
       (4) inserting after paragraph (1) the following:
       ``(2) sales or use taxes for domestic or foreign goods or 
     services acquired through electronic commerce; and''.

     SEC. 2. SENSE OF THE SENATE.

       It is the sense of the Senate that United States 
     representatives to the World Trade Organization, and any 
     other multilateral trade organization of which the United 
     States is a member, should resolutely advocate that it is the 
     firm position of the United States that electronic commerce 
     conducted via the Internet should not be burdened by national 
     or local regulation, taxation, or the imposition of tariffs 
     on such commerce.
                                 ______