[Congressional Record Volume 146, Number 80 (Thursday, June 22, 2000)]
[Senate]
[Pages S5676-S5679]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DORGAN (for himself, Mr. Enzi, Mr. Voinovich, Mr. Breaux, 
        Mr. Graham, Mr. Hutchinson, Mrs. Lincoln, Mr. Bennett, Mr. 
        Bryan, Mr. Cleland, and Mr. Thomas):
  S. 2775. To foster innovation and technological advancement in the 
development of the Internet and electronic commerce, and to assist the 
States in simplifying their sales and use taxes; to the Committee on 
Finance.


                 Internet Tax Moratorium and Equity Act

 Mr. DORGAN. Mr. President, if the Internet and E-commerce are 
to continue to grow and flourish then Congress must address the 
difficult tax issues that these have posed. To that end, Senator 
Voinovich and I, along with Senators Graham, Enzi, Breaux and six of 
our distinguished colleagues are introducing the Internet Tax 
Moratorium and Equity Act.
  First and foremost, this legislation extends for four additional 
years the existing moratorium on punitive and discriminatory Internet 
taxes, and on access taxes. Internet technology is becoming a real 
growth engine for our economy. Governments should not be allowed to 
impose new taxes on access, or to enact discriminatory tax plans that 
would apply to the Internet and E-commerce but not to other kinds of 
transactions. I believe that such policies could foolishly hurt the 
future growth of the Internet industry, and this legislation prevents 
that from happening anytime soon.
  At the same time, however, this legislation moves toward a solution 
to the growing web of tax compliance problems that faces virtually 
everyone who would do business across state lines --sellers and 
customers alike. Our approach also would help to create a climate in 
which Web-based firms and Main Street businesses can co-exist and 
compete on fair and even terms.
  Any new form of commerce presents a challenge to the rules and 
structures that have grown up around the old. The Internet is no 
exception. The Internet has raised vexing questions regarding both 
privacy and the protection of property rights in writing and music. It 
has raised similar questions regarding the revenue systems of the 
states and localities of this nation. Not surprisingly, the Internet 
simply does not fit neatly into these systems as they have evolved over 
the last two hundred years.
  This disconnect has created tensions on all sides. On one side are 
the vital new businesses--Internet service providers, Web-based 
businesses and the rest--worried that they will be singled out as cash 
cows and subjected to new and unfair taxes. On the other side are state 
and local governments worried about the erosion of their tax bases and 
their ability to pay for the schools, police, garbage collection and 
more that their taxpayers need and expect. In between are Main Street 
merchants who collect sales taxes from their customers and worry about 
unfair competition from Web-based business that avoid collecting these 
taxes. Let us not forget the citizens and taxpayers, who appreciate the 
convenience and opportunities of the Web but who also care about their 
Main Street merchants, and about their schools and other local 
services.
  All of these concerns are valid. There are no bad guys in the drama. 
Rather, it is the kind of conflict that a new technology inevitably 
poses. The automobile required the reform of traffic-control rules 
designed for the horse-and-buggy era. So today the rise of E-commerce 
requires an update of tax compliance rules designed primarily for local 
commerce. Our job in Congress is not to point fingers but rather to try 
to address the problem in a fair and constructive way.
  The solution must begin by putting the worries of Web-based 
entrepreneurs to rest. They should not be concerned about new and 
discriminatory tax burdens, and they should not be singled out as cash 
cows. Congress should make this clear. We have enacted a moratorium to 
prohibit state and local governments from enacting tax plans that 
discriminate against the E-commerce or impose a levy on Internet 
access. This existing moratorium is set to expire next year. We should 
extend that moratorium to December 2005. That will help clear the air 
and also make possible the development of a real solution for the sales 
and use tax compliance problems now facing many businesses and and 
their customers.
  The solution begins with a recognition of the problem. Collecting a 
sales tax in a face-to-face transaction on Main Street or at the mall 
is a relatively simple process. The seller collects the tax and remits 
it to the state or local government. But with remote sales--such as 
catalog and Internet sales--it's more difficult. States can not require 
a seller to collect a sales tax unless the business has an actual 
location or sales people in the state. So most states, and many 
localities, have laws that require the local buyer to send an 
equivalent ``use tax'' to the state or local government when he or she 
did not pay taxes at the time of purchase.
  The reality, of course, is that customers almost never do that. It 
would be a major inconvenience, and people are not accustomed to paying 
sales taxes in that way. So, despite the requirement in the law, most 
simply don't do it. This tax, which is already owed, is not paid. For 
years, state and local governments could accept this loss because 
catalog sales were a relatively minor portion of overall commerce. The 
Internet, however, will change that.
  Internet and catalog sellers argue that collecting sales taxes would 
be a significant burden for them. They contend that they would have to 
comply with tax laws from thousands of different jurisdictions--46 
states and thousands of local governments have sales taxes. They would 
have to deal with many different tax rates and all of the 
idiosyncracies regarding what is taxable and what is non-taxable. They 
have a point.
  However, there are some remote sellers who know they enjoy an 
advantage over Main Street businesses and simply do not want to lose 
it. They can sell a product without collecting the tax, whereas Main 
Street businesses must collect the local sales tax. Main Street 
businesses claim that is unfair, and they have a point, too.
  As I said, all sides in this debate have valid points, and that is 
the premise of the bill we introduce today. There are three basic 
principles underlying the Internet Tax Moratorium and Equity Act. 
First, we believe that this new Internet technology is becoming a real 
growth engine for our economy. Governments should not impose access or 
discriminatory taxes that might jeopardize its growth. That's why the 
legislation we are introducing extends the current moratorium on 
Internet access and multiple and discriminatory taxes on electronic 
commerce for over four additional years.

[[Page S5677]]

  Second, state and local governments should be encouraged to simplify 
their sales tax systems as they apply to remote sellers. And third, 
once States have done this, then it is only fair that remote sellers do 
their part and collect any use tax that is owed, just as local 
merchants collect sales taxes. This simple step would free the consumer 
from the burden of having to report such taxes individually. It would 
level the playing field for local retailers and others that already 
collect and remit such taxes, and it would protect the ability of state 
and local governments to provide necessary services for their residents 
in the future.
  Specifically, the Internet Tax Moratorium and Equity Act would do the 
following:
  Extend the existing moratorium on Internet access, multiple and 
discriminatory taxes through December 31, 2005.
  Put Congress on record as urging States and localities to develop a 
streamlined sales and use tax system with the advice of the National 
Conference of Commissioners on Uniform State Laws. Among other things, 
such a system would include a single, blended tax rate with which all 
remote sellers could comply. It should also include within each state a 
uniform tax base on which remote sellers apply the tax, as well as a 
uniform list of exempt items.
  Authorize States to enter into an Interstate Sales and Use Tax 
Compact through which member States would adopt the streamlined sales 
and use tax system. Congressional authority and consent to enter into 
such a Compact would expire if it has not occurred by January 1, 2006.
  Authorize adopting States to require remote sellers with more than $5 
million in annual gross sales to collect and remit sales and use taxes 
on remote sales, once twenty States have adopted such Compact, unless 
Congress has acted to disapprove the Compact by law within a period of 
120 days after the Congress receives it.
  Prohibit states that have not adopted the simplified sales and use 
tax system from gaining benefit from the authority extended in the bill 
to require sellers to collect and remit sales and use taxes on remote 
sales.
  In my view, it would be a mistake for Congress to adopt a lengthy 
extension of the current Internet tax moratorium without addressing the 
underlying problem. If we don't, then the growth of the Internet, which 
should be a benefit to Americans, will instead mean a major erosion of 
funds available to build and maintain schools and roads, finance police 
departments and garbage collection, and all the other services that 
citizens in this country want and need. One study suggests that states 
and local governments soon could be losing more than $20 billion 
annually if the Internet industry continues its rapid growth, and if 
sales and use tax collection rules are left unchanged.
  The competitive crisis facing local retailers is also growing more 
urgent. Testimony at a recent congressional hearing makes that clear: A 
representative of Wal-Mart testified recently that that company is 
incorporating a separate business to put Wal-Mart on the Internet. It 
will do so in a manner that will enable them to avoid sales and use 
taxes. The reason? Even though Wal-Mart has locations in every state 
and therefore would be required to collect such taxes on Internet 
sales, it recognizes that other large competitors will be making those 
sales tax-free. The company regards such avoidance as a matter of 
necessity to remain competitive.
  This scenario will play out over and over again. The large retailers 
like Wal-Mart will survive; the small Main Street businesses will 
struggle. And, there will be a massive loss of revenues to fund schools 
and other basic services.
  Mr. President, this is an important issue that Congress must address 
now. We believe that this legislation strikes a balance between the 
interests of the Internet industry, state and local governments, local 
retailers and remote sellers. It is workable and fair.
  I urge my colleagues to cosponsor this much-needed bipartisan 
legislation.
  Mr. ENZI. Mr. President, I rise in strong support of the Internet Tax 
Moratorium and Equity Act of 2000 introduced today by Senator Dorgan. I 
am an original cosponsor and I encourage each of my colleagues to join 
me as a cosponsor of this bill. We had to take a look at the Internet 
sales tax issue for people who might be using legislative vehicles to 
develop huge loopholes in our current system. We are federally 
mandating states into a sales tax exemption. We need to preserve the 
system for those cities, towns, counties, and states that rely on the 
ability to collect the sales tax they are currently getting.
  There are some critical issues here that have to be solved to keep 
the stability of state and local government--just the stability of it--
not to increase sales tax, just protect what is there right now. I 
believe the Internet Tax Moratorium and Equity Act of 2000 is a 
monumental step forward in protecting, yet enhancing, the current 
system.
  Certainly, no Senator wants to take steps that will unreasonably 
burden the development and growth of the Internet. At the same time, we 
must also be sensitive to issues of basic competitive fairness and the 
negative effect our action or inaction can have on brick-and-mortar 
retailers, a critical economic sector and employment force in all 
American society, especially in rural states like Wyoming. In addition, 
we must consider the legitimate need of state and local governments to 
have the flexibility they need to generate resources to adequately fund 
their programs and operations.
  If the loophole exists, I can share a method for local retailers to 
avoid sales tax collection too--but creating this loophole will lead to 
others--pay attention here. Sales tax collection and federal and state 
income tax could be in the same boat, if sole tax collection is no 
longer necessary on Internet sales purely by virtue of the sale over 
the Internet. Why shouldn't an employee whose check is written on the 
Internet and transmitted directly to his bank account not owe any 
income tax? Both would be Internet tax loopholes--tax collection 
exemptions forced by an all-knowing Federal Government.
  As the only accountant in the Senate, I have a unique perspective on 
the dozens of tax proposals that are introduced in Congress each year. 
In addition, my service on the State and local level and my experiences 
as a small business owner enable me to consider these bills from more 
than one viewpoint.
  I understand the importance of protecting and promoting the growth of 
Internet commerce because of its potential economic benefits. It is a 
valuable resource because it provides access on demand. In addition, it 
is estimated that the growth of online businesses will create millions 
of new jobs nationwide in the coming years. Therefore, I do not support 
a tax on the use of Internet itself.
  I do, however, have concerns about using the Internet as a sales tax 
loophole. Sales taxes go directly to state and local governments and I 
am very leery of any federal legislation that bypasses their 
traditional ability to raise revenue to perform needed services such as 
school funding, road repair and law enforcement. I will not force 
states into a huge new exemption. While those who advocate a permanent 
loophole on the collection of a sales tax over the Internet claim to 
represent the principles of tax reduction, they are actually advocating 
a tax increase. Simply put, if Congress continues to allow sales over 
the Internet to go untaxed and electronic commerce continues to grow as 
predicted, revenues to state and local governments will fall and 
property taxes will have to be increased to offset lost revenue or 
States who do not have or believe in State income taxes will be forced 
to start one.

  After months of hard work, negotiations, and compromise, the Internet 
Tax Moratorium and Equity Act of 2000 has been introduced. I would like 
to commend Senator Dorgan on his commitment to finding a solution and 
working all parties to find that solution. The bill extends the 
existing moratorium on Internet access, multiple, and discriminatory 
taxes for an additional four years through December 31, 2005.
  Throughout the past several years, we have heard that catalog and 
Internet companies say they are willing to allow and collect sales tax 
on interstate sales (regardless of traditional or Internet sales) if 
States will simplify

[[Page S5678]]

collections to one rate per State sent to one location in that State. I 
think that is a reasonable request. I have heard the argument that 
computers make it possible to handle several thousand tax entities, but 
from an auditing standpoint as well as simplicity for small business, I 
support one rate per State. I think the States should have some 
responsibility for redistribution not a business forced to do work for 
government. Therefore, the bill would put Congress on record as urging 
States and localities to develop a streamlined sales and use tax 
system, which would include a single, blended tax rate with which all 
remote sellers can comply. You need to be aware that States are 
prohibited from gaining benefit from the authority extended in the bill 
to require sellers to collect and remit sales and use taxes on remote 
sales if the States have not adopted the simplified sales and use tax 
system.
  Further, the bill would authorize States to enter into an Interstate 
Sales and Use Tax Compact through which members would adopt the 
streamlined sales and use tax system. Congressional authority and 
consent to enter into such a compact would expire if it has not 
occurred by January 1, 2006. The bill also authorizes States to require 
all other sellers to collect and remit sales and use taxes on remote 
sales unless Congress has acted to disapprove the compact by law within 
a period of 120 days after the Congress receives it.
  We introduce this bill because we do not think there is adequate 
protection now. It is very important we do not build electronic 
loopholes on the Internet, an ever-changing Internet, one that is 
growing by leaps and bounds, one that is finding new technology 
virtually every day. What we know as the Internet today is not what we 
will be using by the time the moratorium is finalized. More and more 
people are using the Internet everyday.
  Mr. President, I recognize this body has a constitutional 
responsibility to regulate interstate commerce. Furthermore, I 
understand the desire of several Senators to protect and promote the 
growth of Internet commerce. Internet commerce is an exciting field. It 
has a lot of growth potential. The new business will continue to create 
millions of new jobs in the coming years.
  The exciting thing about that for Wyomingites is that our merchants 
do not have to go where the people are. For people in my State, that 
means their products are no longer confined to a local market. They do 
not have to rely on expensive catalogs to sell merchandise to the big 
city folks. They do not have to travel all the way to Asia to display 
their goods. The customer can come to us on the Internet. It is a 
remarkable development, and it will push more growth for small 
manufacturers in rural America, especially in my State. We have seen 
some of the economic potential in the Internet and will continue this 
progress. It is a valuable resource because it provides access on 
demand. It brings information to your fingertips when you want it and 
how you want it.
  I was the mayor of a small town, Gillette, WY, for 8 years. I later 
served in the State house for 5 years and the State senate for 5 years. 
Throughout my public life I have always worked to reduce taxes, to 
return more of people's hard-earned wages to them.
  I am not here to argue in favor of taxes. There were times in 
Gillette when we had to make tough decisions. I was mayor during the 
boom time when the size of our town doubled in just a few years. We had 
to be very creative to be sure that our revenue sources would cover the 
necessary public services--important services like sewer, water, curb 
and gutter, filling in potholes, shoveling snow, collecting garbage, 
and mostly water. It is a tough job because the impact of your decision 
is felt by all of your neighbors. Hardly any of these problems is 
solved without money. When you are the mayor of a small town, you are 
on call 24 hours a day. You are in the phone book. People can call you 
at night and tell you that the city sewer is backing up into their 
house. I was fascinated how they were always sure that it was the 
city's sewer that was doing it. Therefore, it is important that we do 
not cut towns out of a historic source of revenue. They provides 
services you really depend on. Remember you cannot flush your toilet 
over the Internet.
  The point is that the government that is closest to the people is 
also on the shortest time line to get results. I think it is the 
hardest work. I am very concerned with any piece of legislation that 
mandates or restricts local government's ability to meet the needs of 
its citizens. This has the potential to provide electronic loopholes 
that will take away all of their revenue. The Internet Tax Moratorium 
and Equity Act of 2000 would designate a level playing field for all 
involved--business, government, and the consumer.
  If the loophole exists, I can share a method for local retailers to 
avoid sales tax collection too--but creating this loophole will lead to 
others--pay attention here. Sales tax collection and federal and state 
income tax could be in the same boat, if sole tax collection is no 
longer necessary on Internet sales purely by virtue of the sale over 
the Internet. Why shouldn't an employee whose check is written on the 
Internet and transmitted directly to his bank account not owe any 
income tax? Both would be Internet tax loopholes--tax collection 
exemptions forced by an all-knowingly federal government.
  I do strongly support this bill. The current system of collecting 
revenues for those towns and states should be preserved--preserved on a 
level playing field for all involved. I do not think we have all the 
answers, or we would not be asking for this bill. So whatever we do, we 
have to have a bill that will preserve the way that small business and 
small towns function at the present at the present time. Our bill is 
critical for towns, small businesses, and you and me. I urge my 
colleagues to support it.
  I yield the floor.
  Mr. GRAHAM. Mr. President, earlier this year, the Senate began 
consideration of the Elementary and Secondary Education Act 
reauthorization. As its name suggests, that legislation governs how 
Federal dollars that go to the States for education will be spent. It 
is a very important bill, and I regret that the Senate was unable to 
complete consideration of it.
  As important as the ESEA reauthorization bill is, however, it is not 
the most significant education bill that Congress will deal with in the 
next two years. In fact, the most important education bill Congress 
will consider won't mention schools or students. It won't reference 
classroom size or teacher salaries.
  In 1998, Congress passed the Internet Tax Freedom Act. That bill 
imposed a three year moratorium on specific state taxes applicable to 
the Internet. The legislation didn't affect the states' ability to 
impose sales tax on Internet purchases, nor did it fix the unfair 
advantage ``e-tailers'' currently have over their main street 
competitors with respect to their responsibility to collect sales and 
use taxes.
  As a result of two Supreme Court rulings, a state is prohibited from 
requiring out-of-state retailers from collecting sales tax on purchases 
made by its residents if the business has no presence in the state. The 
sales tax still applies, it just has to be collected directly from the 
purchaser. For a variety of reasons, very little of this tax is ever 
collected.
  The Internet Tax Freedom Act created the Advisory Commission on 
Electronic Commerce which was supposed to come up with a solution to 
this problem. Instead the Commission was hijacked by a small group who 
opted to demagogue this issue to further their ``anti-tax'' agenda. The 
result was a year-long study of an issue with little in the form of 
useful recommendations.
  The House has passed a five year extension of the moratorium put in 
place by the Internet Tax Freedom Act. The Senate also may soon 
consider a proposal to extend the temporary ban imposed in 1998. The 
game plan of the forces supporting this extended moratorium is clear: 
delay, delay, delay. Keep extending the moratorium until there is a 
sufficiently large political constituency to permanently block the 
collection of sales taxes on purchases made over the Internet.
  This is not a hidden agenda. Governor Gilmore, Chairman of the 
Advisory Commission on Electronic Commerce stated it clearly when he 
said that ``I believe America should ban sales and use taxes on the 
Internet permanently, for all time. If we secure tax freedom on the 
Internet through 2006, tax freedom on the Internet will become an 
entitlement for the American

[[Page S5679]]

people and a political inevitability. No tax collector will be welcome 
on the Internet after 2006.''

  Let me be clear: this is not about whether purchases made over the 
Internet are subject to sales tax. They already are. The question is 
whether Internet sellers should have the same responsibility to collect 
the sales tax as their Main Street competitors.
  If we answer this question with a ``no,'' funding for education will 
suffer. Why? Because states have the fundamental responsibility for 
financing public education in our country For most states, sales tax 
revenue is the primary means by which states fulfill this 
responsibility. Because many states rely on sales taxes for their 
general revenue, the equation is simple--no collection of sales tax on 
the Internet means less money for new schools, teacher salaries, or 
textbooks. Six states--Florida, Nevada, South Dakota, Tennessee, Texas 
and Washington rely on sales taxes for more than half of their total 
tax revenue.
  Over the next four years, Internet sales are expected to grow by 
nearly $500 billion. If state and local governments are prohibited from 
collecting sales taxes on those new sales, they stand to lose close to 
$17.5 billion in revenue. Florida's share of that lost revenue could be 
$1 billion. When asked why he robbed banks, Willie Sutton replied, 
``that's where the money is.'' Today, the money is increasingly on the 
Internet.
  There is another reason to fix this issue: fairness. No one would 
seriously consider a proposal that barred state and local governments 
from collecting sales and use taxes from retailers who operate from 
green buildings. That would be unfair to those businesses that aren't 
located in green buildings. Proposals to arbitrarily benefit the 
Internet, however, somehow receive a great deal of attention and 
support.
  Our position should be clear: no more delays. No more moratoriums 
until Congress agrees to a process whereby states can simplify their 
sales tax systems and receive the authority they need to require remote 
sellers to collect their sales taxes.
  The legislation we are introducing today takes the first positive 
step in this direction. The bill extends the current moratorium on 
Internet access taxes and multiple or discriminatory taxes on the 
Internet, a prohibition that virtually all agree should be imposed.
  More importantly, however, it establishes a process whereby states 
can cooperatively create a model sales and use tax system. Sales tax 
laws must be made significantly more uniform across the states, and the 
administration of the tax must be substantially overhauled and 
simplified. The goal of this legislation is to develop a simple, 
uniform, and fair system of sales tax collection. It will reduce the 
burden on remote sellers and protect state and local sovereignty.
  Once states have adopted this simplified system, they would then have 
the authority to require remote sellers to collect and remit sales and 
use taxes to the state.
  Previous attempts to require remote sellers to collect sales and use 
taxes have been criticized on the grounds that it was unreasonable to 
require businesses to keep track of the nearly 7,500 state and local 
governments levying sales and use taxes. That is a suspect criticism, 
particularly for those. Nevertheless, this bill dramatically simplifies 
the system for businesses by establishing uniform definitions and fewer 
rates.
  The streamlined sales and use tax system envisioned by this 
legislation follows the guidance offered by the Advisory Commission on 
Electronic Commerce. The attributes of this streamlined system include:
  A centralized, one-stop, multi-state registration system for sellers;
  Uniform definitions for goods or services that would be included in 
the tax base;
  Uniform and simple rules for attributing transactions to particular 
taxing jurisdictions;
  Uniform rules for the designation and identification of purchasers 
exempt from tax;
  Uniform certification procedures for software that sellers may rely 
on to determine state and local taxes;
  Uniform bad debt rules;
  Uniform returns and remittance forms;
  Consistent electronic filing and remittance methods;
  State administration of State and local sales taxes;
  Uniform audit procedures;
  Reasonable compensation for tax collection by remote sellers;
  Exemption for remote sellers with less than $5 million in annual 
sales for the previous year;
  Appropriate protections for consumer privacy; and
  Such other features that member states deem warranted to promote 
simplicity.
  Critics of this legislation will argue that it is anti-technology, 
and that the Internet must be protected from this threat. That is not 
true. The sponsors of this bill yield to no one in their support and 
enthusiasm for a vibrant information technology era. But that support 
does not necessitate special breaks for companies doing business over 
the Internet.
  A more appropriate characterization for this legislation is that it 
will both assure fairness to all sellers and protect states' abilities 
to collect the resources necessary to make the education investments 
that will pave the way for the next technological breakthrough--the 
next Internet. I hope my colleagues will join us and support this 
approach.
                                 ______