[Congressional Record Volume 146, Number 8 (Thursday, February 3, 2000)]
[Senate]
[Pages S329-S330]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. WYDEN (for himself, Mr. Abraham, and Mr. Leahy):
  S. 2028. A bill to make permanent the moratorium enacted by the 
Internet Tax Freedom Act as it applies to new, multiple, and 
discriminatory taxes on the Internet; to the Committee on Commerce, 
Science, and Transportation.


                    internet non-discrimination act

  Mr. WYDEN. Mr. President, today, I am introducing the Internet Non-
Discrimination Act. The central principle of this bill is that our tax 
policy should not discriminate against the most vibrant part of our 
nation's economy. The legislation would extend indefinitely the 
Internet Tax Freedom's Act's three-year moratorium on discriminatory 
taxes against the Internet and electronic commerce. I am pleased to be 
joined in this effort by Senators Abraham and Leahy.
  Three years ago, when Congressman Chris Cox and I introduced the 
Internet Tax Freedom Act (ITFA), we said you can't squeeze the new 
economy into a set of rules written for smokestack industry. At that 
time, opponents predicted that retailers would vanish from Main Streets 
across America. Transcripts from hearings held on the legislation in 
the summer of 1997 are replete with opponents' predictions that a 
parade of horribles would be visited on every small merchant in every 
town in the United States. I am pleased to report that none of the 
horribles has come to pass.
  In fact, this is what has happened in the 15 months since the 
Internet Tax Freedom Act was passed by the Senate 98-2 and became law.

  States and localities have continued to collect sales and use taxes, 
and state budgets ended fiscal l999 with a $35 billion surplus. In 
California--one of the most wired states--1999 sales tax collections 
are up 20 percent over 1998.
  Traditional bricks and mortar retailers had one of their best holiday 
seasons, recording a nearly 8% jump in sales over the previous year.
  A recent survey of 1,500 Main Street businesses nationwide found that 
74 percent have gone online since l997.
  E-commerce has become part of the retail landscape, but still 
accounts for only \3/10\s of one percent of total retail sales.
  States with the highest level of Internet use are also those with 
some of the largest gains in tax revenues.
  It is clear to me that while state and local tax collectors sat 
wringing their hands, America's merchants were working on web pages. 
Main Street merchants seized the opportunity to expand their sales to 
new markets by going online. They also recognized the efficiencies of 
conducting their business-to-business transactions online. Rather than 
weaken Main Street merchants, the Internet has strengthened them. 
Rather than drain state and local tax coffers, the technological 
neutrality of the Internet Tax Freedom Act allowed online business to 
grow and state and local authorities to continue to collect lawful, 
nondiscriminatory taxes. The technological neutrality of the ITFA 
contributed to the rapid transformation of a bricks and mortar economy 
into a clicks and mortar economy.
  I want the success of the bricks and clicks economy to continue, but 
consumers and businesses need some certainty. They need to know they 
won't have to start paying new taxes targeted specifically at e-
commerce when the current moratorium expires in October 2001. That's 
why the ban on discriminatory taxes against the Internet and e-commerce 
should be made permanent.
  The Internet Non-Discrimination Act we are introducing today will do 
just that. It continues the policy of technological neutrality. It 
allows state and local tax authorities to continue to collect lawful, 
nondiscriminatory sales or use taxes on online sales. It will give the 
governors time to see if they can move forward with their technological 
fix for collecting remote sales and use tax--a voluntary plan which 
will require the cooperation of every business in this nation, from 
Bandon, Oregon to Bangor, Maine. And, finally, it extends permanently a 
policy that has worked well for the last 15 months and under which 
consumers, businesses and state and local tax collectors have lived--
and thrived.
  In about two months the Advisory Commission on Electronic Commerce 
will issue its final report. After having talked yesterday with the 
Chairman of the Commission, Virginia Governor James Gilmore, I am 
hopeful that the Commission will endorse the approach we are taking in 
this bill.
  If Congress does not act this year to extend the technologically 
neutral policy that is at the heart of the Internet Non-Discrimination 
Act, consumers and businesses will face thousands of tax authorities in 
this country jumping into their pockets when the current moratorium 
expires in October 2001. Consumers and businesses want certainty that 
they won't suddenly be facing an onslaught of new, confusing and 
discriminatory taxes.
  A companion bill is being introduced in the House of Representatives 
today by Congressman Chris Cox, with whom I've worked on this issue for 
four years now. I am hopeful that this, our fourth bipartisan Internet 
effort, will be as successful as our previous three. I ask unanimous 
consent that the bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2028

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Internet Nondiscrimination 
     Act''.

     SEC. 2. REPLACEMENT OF MORATORIUM WITH PERMANENT BAN ON NEW, 
                   MULTIPLE, AND DISCRIMINATORY TAXES ON THE 
                   INTERNET.

       Section 1101(a) of title XI of division C of Public Law 
     105-277 is amended by striking ``during the period beginning 
     on October 1, 1998, and ending 3 years after the date of 
     enactment of this Act'' and inserting ``on or after October 
     1, 1998.''

  Mr. ABRAHAM. Mr. President, I rise today to join my colleague, 
Senator Wyden, in introducing legislation to extend indefinitely the 
current moratorium on new and discriminatory Internet taxes. Once 
again, Senator Wyden has demonstrated his grasp of the crucial issues 
surrounding electronic commerce and has moved rapidly to assure that 
potential barriers to the new economy are eliminated before they do any 
harm. I am pleased to join him in his latest effort.

[[Page S330]]

  By now, it is obvious to everyone that e-commerce is the wave of the 
future. As a matter of fact, it's safe to say that the future is 
already here. During the week of December 6 alone, Americans bought 
$1.22 billion of merchandise online. Sales for 1999 should reach $64.8 
billion. Beyond shopping, 5.3 million households had access to 
financial transactions like electronic banking and stock trading by the 
end of last year.
  The rate of growth for Internet commerce has been exponential for the 
past several years. Unfortunately, it's also a tempting target for 
taxation by the Federal Government, States and localities. And that 
could slow the growth of e-commerce and of our entire economy.
  We responded to this potential problem by passing Senator Wyden's 
legislation in 1998, to place a three-year moratorium on new or 
discriminatory Internet taxes, fees or charges. That legislation also 
established a Commission to explore the issue of Internet taxation and 
to submit to Congress a list of recommendations on how the Federal 
Government should legislate in this area.
  We are only halfway through the moratorium, but already it seems 
there are only two possible conclusions to the Commission. The first is 
that the wide differences of opinion within the Commission will make it 
impossible for the members to muster the majority of support necessary 
to submit a report. This is worrisome, Mr. President, because, unless 
action is taken by this Congress, the moratorium will expire and the 
door will be opened to new, discriminatory taxes on the Internet.
  The other possibility, more recently offered, is that the Commission 
may actually recommend an extension of the current moratorium. Whatever 
the conclusion therefore, the role of Congress is clear; the Internet 
Tax Moratorium must be extended indefinitely. And because of the 
limited number of legislative days scheduled in this election year, the 
process of doing so should begin now.

  As everyone knows, the current moratorium only precludes new and 
discriminatory taxes. It does not address the more difficult question 
of how to apply existing, State sales taxes to Internet transactions. 
The Supreme Court has spoken to this issue, ruling that States can 
indeed impose taxes on transactions much like Internet sales--namely 
catalog sales. However, States cannot force a business to collect sales 
taxes on purchases made to States where they have no physical presence 
or ``nexus.'' This discrepancy in sales taxation between main street 
businesses and those that sell goods over the Internet will be 
difficult to address for the following reasons:
  First, very soon every business will be an e-business in the sense 
that they will be using the Internet for sales, supplies, contracting 
and other purposes. We couldn't stop this process if we wanted to, and 
we shouldn't want to. According to one recent survey, 74 percent of 
brick and mortar, main street businesses have added ``click and 
mortar'' Internet services to their business.
  Second, the border less nature of the Internet is going to make it 
difficult--if not impossible--to determine what constitutes ``nexus.'' 
For example, what happens when someone in California uses America 
Online in Virginia to order fudge from the ``shopmackinac'' website in 
Michigan, and ships them to a friend in Rhode Island? Which State 
should claim ``nexus?''
  Perhaps a ``destination-based'' Internet sales tax regime would be 
more effective in terms of collecting State sales taxes. Whatever the 
eventual outcome, I believe that in light of the present uncertainty it 
would not be proper for Congress to intervene on this issue. The States 
must have every opportunity to debate and possibly even initiate a 
model for addressing the current impasse.
  What is necessary is Congressional action to ensure that new, 
discriminatory taxes are not levied on the Internet by States or 
localities as a means of substituting perceived lost revenue. Many 
Governors--including Governor Engler of Michigan--support an extension 
of the current Internet tax moratorium.
  Access fees and similar Internet taxes, whether imposed by the 
States, localities, or the Federal government, pose a grave threat to 
the continued evolution of the Internet. America is experiencing a 
record period of growth and prosperity. In my view, the continued 
expansion of the economy is due primarily to electronic commerce. The 
spirit of entrepreneurship which has energized our nation, the adoption 
of new business models to more fully explore marketing and sales 
possibilities and the dramatic increase in consumer and business 
services are all largely the product of our new e-economy. Why on earth 
would anyone, or any government, want to threaten this dynamic medium 
when it is still in its infancy by increasing the cost of doing 
business over the Internet? I certainly do not, and I will continue to 
work to ensure that neither the Federal government nor other units of 
government threaten electronic commerce.

  If we are able to keep the government focused on removing impediments 
to electronic commerce rather than interfering in the development and 
implementation of new technologies then very soon the e-economy will 
simply be the economy, and our nation will be more prosperous as a 
result.
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