[Congressional Record Volume 147, Number 31 (Friday, March 9, 2001)]
[Senate]
[Pages S2131-S2135]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DORGAN (for himself, Mr. Enzi, Mr. Graham, Mr. Voinovich, 
        Mr. Breaux, Mr. Thomas, Mr. Durbin, Mr. Chafee, Mrs. Lincoln, 
        Mrs. Hutchison, and Mr. Rockefeller):
  S. 512. A bill 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.
  Mr. DORGAN. Mr. President, today I'm joined by Senators Enzi, Graham, 
Voinovich, Breaux, and a number of our colleagues in re-introducing the 
Internet Tax Moratorium and Equity Act. This legislation is nearly 
identical to legislation we sponsored in the last Congress. We believe 
that it is absolutely imperative that Congress move quickly this year 
to consider this legislation and the difficult tax issues relating to 
Internet sales that it seeks to address.
  First, most everyone who is familiar with this issue knows that the 
current expiration date for the moratorium on Internet access and 
discriminatory taxes is fast approaching. We believe

[[Page S2132]]

the moratorium should be extended. Also, 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.
  Despite some setbacks, Internet technology and commerce will continue 
to be a real growth engine for our economy. The past holiday season, 
retail sales over the Internet jumped 76 percent from the same period a 
year earlier. A recent University of Texas study estimated that $830 
billion in revenues were generated by the Internet economy in 2000, up 
58 percent from 1999 levels. Together, this information suggests that 
Internet sales are not going to be either temporary or insignificant, 
and neither are the compliance problems.
  We believe that the approach embraced in our bill would help 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 automobile required the reform of traffic-control 
rules designed for the horse-and-buggy era. And the Internet is no 
exception. The Internet has raised vexing questions about privacy and 
property rights. It has raised similarly vexing questions regarding the 
revenue systems of the States and localities of this nation. Clearly, 
the Internet 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 do not have to collect 
these taxes. And we shouldn't overlook 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 understandable and valid. Our job in 
Congress is to try to address the problem in a fair and constructive 
way.
  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 cannot 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 
rapid growth of Internet sales is changing all that.
  Internet and catalog sellers correctly argue that collecting sales 
taxes would be a significant burden for them. Understandably, they 
contend that it would be difficult for them to have to comply with tax 
laws from thousands of different jurisdictions, 46 States and thousands 
of local governments have sales taxes, with 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 have said before, 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 will remain a 
real growth engine for our economy, and 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. 
That's why our bill would extend the existing moratorium, which is set 
to expire on October 21st, through December 31, 2005. That will help 
remove some of the anxiety about the approaching expiration date, 
while giving all stakeholders--State and local governments, Internet 
sellers, and the bricks and mortar retail community, time to work 
together to develop a real solution for the sales and use tax 
compliance problems now facing many businesses and their customers.

  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 reduced the burden on sellers by simplifying their 
sales and use tax systems, 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 streamline 
their sales and use tax systems. Among other things, a dramatically 
simplified sales and use tax system would allow remote sellers to use 
information provided by the States to easily identify the single 
applicable rate for each sale, as well as provide sellers relief from 
liability for relying on such information.
  Require such a simplified tax system to include: uniform definitions 
for goods and services, uniform procedures for the treatment of exempt 
purchasers, and uniform rules for attributing transactions to 
particular tax jurisdictions, as well as uniform audit procedures and a 
seller's option for a single audit.
  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 States that adopt the Compact 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 a 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 judgment, it would be a serious mistake for Congress to adopt a 
lengthy extension of the current Internet tax moratorium without 
addressing these underlying problems. If we don't address the problems, 
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.
  Moreover, the competitive crisis facing local retailers is also 
growing more

[[Page S2133]]

urgent. In testimony before the Commerce Committee in the last 
Congress, a representative from a large retailer testified that his 
company is incorporating a separate business to put the business on the 
Internet. It will do so in a manner that will enable them to avoid 
sales and use taxes. Even though the retailer has locations in every 
State and therefore would be required to collect such taxes on Internet 
sales, it believes that such avoidance is needed to compete with other 
large competitors that will be making those sales tax-free. This 
scenario could play out over and over again unless we act quickly and 
decisively. If we don't act, the large retailers will survive, the 
small Main Street businesses will continue to struggle, and there will 
be a massive loss of revenues to fund schools and other basic services.
  Let me conclude by reiterating that this is an issue that Congress 
must address now. It is important for Congress to begin the process of 
finding a long-term solution to the problem this year before the 
moratorium expires. We believe that our legislation strikes a proper 
balance between the interests of the Internet industry, State and local 
governments, local retailers and remote sellers. It is workable and 
fair, and I urge my colleagues to cosponsor this much-needed bipartisan 
legislation.
  I ask unanimous consent to have the following two statements put in 
the Record, one from a group of organizations representing States and 
localities, and the other from the E-Fairness Coalition.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

  [From National Governors' Association, National Conference of State 
  Legislatures, Council of State Governments, National Association of 
 Counties, United States Conference of Mayors, and International City/
             County Management Association, March 9, 2001]

  Statement on the Introduction of the ``Internet Tax Moratorium and 
  Equity Act'' Sponsored by Senators Dorgan, Enzi, Voinovich, Graham, 
   Breaux, Hutchison, Chafee, Thomas, Lincoln, Durbin and Rockefeller

       Our organizations representing the nation's state and local 
     governments support the goals of Senators Dorgan, Enzi, 
     Voinovich, Graham, Breaux, Hutchison, Thomas, Chafee, 
     Lincoln, Durbin and Rockefeller to provide for a level 
     playing field for all retail sales through state based 
     simplification of sales and use tax structures that allows 
     for the collection of the appropriate applicable state and 
     local sales and use tax.
       State and local governments recognize the need to simplify 
     the current sales and use tax collection systems to benefit 
     the national economy through the removal of unnecessary 
     complexity. The nation's state and local sales and use taxes 
     are the single most important source of support for public 
     education in America. We regard it as critical that the 
     Congress support efforts to prevent erosion of this revenue 
     source essential to funding our education systems.
       The efforts of the more than 30 states to simplify their 
     systems to dramatically reduce the complexity and cost of 
     collection for all sellers is evidence of our commitment to 
     adapt to the new economy. We would oppose any effort to 
     extend the moratorium, unless and until, Congress acts to 
     restore the authority of states and local governments to 
     ensure that all vendors are treated equally.
       We support federal legislation that ensures that any sales 
     and use tax simplification process would be developed and 
     implemented on the state and local level and grant to those 
     states the authority to require out of state sellers to 
     collect and remit sales and use taxes. Preservation of state 
     and local sovereignty is a cornerstone of our federal system; 
     this legislation promises an important opportunity to restore 
     this element.
       We look forward to working with Senators Dorgan, Enzi, 
     Voinovich, Breaux, Graham, Hutchison, Thomas, Chafee, 
     Lincoln, Durbin, Rockefeller and others to further refine 
     legislative language to achieve this end.
                                  ____



                                                   e-Fairness,

                                    Washington, DC, March 7, 2001.
     Hon. Byron Dorgan,
     U.S. Senate,
     Washington, DC.
       Dear Senator Dorgan: I am writing to congratulate you on 
     the introduction of the ``Internet Tax and Moratorium Equity 
     Act.''
       The e-Fairness Coalition includes brick-and-mortar and 
     online retailers, realtors, retail and real estate 
     associations, as well as publicly and privately owned 
     shopping centers, the Newspaper Association of America, and 
     members of the high-tech community such as Gateway and 
     Vertical Net. The Coalition advocates a level playing field 
     with respect to sales and use tax collection for all 
     retailers, including bricks-and-mortar as well as Internet-
     based.
       We have been working for over 18 months to help provide a 
     comprehensive solution to the questions surrounding Internet 
     taxation. We continue to believe that federal legislation is 
     necessary in order to provide for tax equity amongst all 
     retailers. Your bill is important because it promotes the 
     continued growth of the Internet by extending the current 
     moratorium on Internet access fees and multiple and 
     discriminatory taxes. However, it also provides clear and 
     reasonable simplification guidelines that once adopted would 
     allow the states to require that remote sellers collect use 
     taxes just as Main Street retailers collect sales taxes.
       On behalf of the nation's retailers and real estate 
     interests--and the 1 in 5 American workers our members 
     represent--I applaud you for your leadership on this 
     important issue. Our Coalition looks forward to continuing to 
     work with you to provide a level playing field for all 
     retailers and all consumers.
           Sincerely,
                                                      Lisa Cowell,
                                               Executive Director.
       On behalf of:
       Alabama Retail Association.
       American Booksellers Association.
       American Jewelers Association.
       Ames Department Stores.
       Atlantic Independent Booksellers Association.
       CBL & Associates Properties, Inc.
       Circuit City Stores, Inc.
       Electronic Commerce Association.
       First Washington Realty Trust, Inc.
       Florida Retail Federation.
       Gateway Companies, Inc.
       General Growth Properties, Inc.
       Georgia Retail Association.
       Great Lakes Booksellers Association.
       Home Depot.
       Illinois Retail Merchants Association.
       International Council of Shopping Centers (ICSC).
       International Mass Retail Association (IMRA).
       Kentucky Retail Association.
       Kimco Realty Corporation.
       K-Mart Corporation.
       Lowe's Corporation, Inc.
       The Macerich Company.
       Michigan Retailers Association.
       Mid-South Booksellers Association.
       Missouri Retailers Association.
       Mountains & Plains Booksellers Association.
       National Association of College Stores.
       National Association of Convenience Stores.
       National Association of Industrial and Office Properties 
     (NAIOP).
       National Association of Real Estate Investment Trusts 
     (NAREIT).
       National Association of Realtors (NAR).
       National Community Pharmacists Association.
       National Retail Federation.
       New England Booksellers Association.
       Newspaper Association of America.
       North American Retail Dealers Association.
       Northern California Independent Booksellers.
       Pacific Northwest Booksellers Association.
       Performance Warehouse Association.
       RadioShack Corporation.
       Regency Realty Corporation.
       Retailers Association of Massachusetts (RAM).
       ShopKo.
       Simon Property Group.
       Southeast Booksellers Association.
       Southern California Booksellers Association.
       South Carolina Merchants Association (SCMA).
       Target, Inc.
       Taubman Centers, Inc.
       The Gap, Inc.
       The Macerich Company.
       The Musicland Group, Inc.
       The Real Estate Roundtable.
       The Rouse Company.
       Variety Wholesalers.
       VerticalNet, Inc.
       Virginia Retail Merchants Association.
       Wal-Mart.
       Weingarten Realty Investors.
       Westfield America, Inc.

  Mr. ENZI. Mr. President, I rise in strong support of the Internet Tax 
Moratorium and Equity Act 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 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

[[Page S2134]]

Internet. At the same time, we must also be sensitive to issues of 
basic competitive fairness and the negative affect 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 sales 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 has been introduced. I would like to 
commend Senator Dorgan on his commitment to finding a solution and 
working with 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 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, Wyoming, 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 those 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 an historic source of revenue. They provide 
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 would designate a level playing field for all involved--
business, government, and the consumer.
  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 time. Our bill is critical for 
towns,

[[Page S2135]]

small businesses, and you and me. I urge my colleagues to support it. I 
yield the floor.

                          ____________________