[Congressional Record Volume 147, Number 132 (Thursday, October 4, 2001)]
[Senate]
[Pages S10302-S10303]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DORGAN (for himself and Mr. Breaux):
  S. 1504. A bill to extend the moratorium enacted by the Internet Tax 
Freedom Act through June 30, 2002; to the Committee on Commerce, 
Science, and Transportation.
  Mr. DORGAN. Mr. President, I am going to introduce legislation today 
on behalf of myself, Senator Breaux from Louisiana, and Senator 
Hutchison from Texas dealing with the extension of the moratorium on 
Internet taxation. Let me describe what that is and what it means.
  We already have in law a provision that provides a moratorium on the 
taxation of the Internet as it is called, but it really provides a 
moratorium on a State government's or a local government's ability to 
provide a tax on the access to the Internet. There is a moratorium. 
That moratorium expires on October 21. Except those few that are 
grandfathered, the moratorium bill not only prohibits State and local 
governments, from imposing a tax on access to the Internet, it also 
prohibits punitive or discriminatory taxes with respect to the 
Internet.
  The Congress passed that legislation a couple of years ago. It was 
designed to expire October 21 of this year. In a few days, it will 
expire, and there are colleagues of mine who have offered in recent 
days extensions of the moratorium. Some are talking 5 years; some are 
talking 2 years. I think both of those are far too long. I propose we 
extend the moratorium until June 30 of next year.
  There is another issue that relates to this, which is why I believe 
there needs to be an extension. We need to solve the problem of tax 
collections with respect to Internet transactions and all transactions 
of remote sales. When you use a computer, or a catalog for that matter, 
to buy a product, when you receive that product, in most cases you are 
supposed to pay a sales or a consumption tax to your local government 
or your State government.
  In point of fact, most people never pay that tax. So the State and 
local governments lose that revenue. The seller, a catalog company or 
an Internet company that is doing business in most of the States, is 
not required to collect that sales tax so the seller does not collect 
it. The person who receives it or orders it and then receives the goods 
does not pay it, even though they are required to, and the State and 
local governments lose a substantial amount of money.
  A recent study from the Institute for State Studies says this year 
the loss will be $13.3 billion for State and local governments, and by 
the year 2011 it is expected State and local governments will lose 
$54.8 billion of expected revenue. Most of this, incidentally, is 
revenue that is essential to school systems around the country. Most of 
this is essential for State and local governments to keep their school 
systems operating and pay for their schools and education programs.
  So State and local governments have a very serious problem. What do 
they do about it? Internet sellers and catalog sellers also have a 
problem. If one is set up in business to sell all across the country, 
but they really have only one location and that is the area where they 
are set up in business, they do not want to have to subscribe to 5,000 
or 7,000 different sales tax jurisdictions. That is far too 
complicated. The remote sellers have a right to say: We don't want to 
have to subscribe and pay taxes and file forms in thousands and 
thousands of different jurisdictions. They are right about that.

  What is to be done? It seems to me there is a requirement for State 
and local governments to simplify their sales tax systems, and when 
they have dramatically simplified those systems so that companies that 
are doing business all across the country can easily comply with the 
requirements--when that happens, when State and local government do 
that--I believe those engaged in remote sales should collect the tax 
and remit it to State and local governments. It will be easy for the 
consumer to have that happen. The tax is already owed. It seems to me 
it will be convenient enough for the seller to do it if the States have 
dramatically simplified their system. And it will finally provide the 
resources the States and local governments have been counting on to 
support their school systems. All of that ought to be done.
  As far as I am concerned, I don't mind extending this moratorium 
forever--6 months, 2 years, 5 years. It doesn't matter to me. We should 
not apply discriminatory taxes. We should not apply punitive taxes to 
Internet transactions. I don't care much about the question of taxing 
access. As far as I'm concerned, we can prevent all State and local 
governments from doing that. It does not matter much to me. Speaking 
for myself, we could make permanent the moratorium. But it should be 
made permanent or should be made a long-term extension only when we 
agree, all of us, that we have another problem attendant to it: the 
problem of the collection and remission of taxes that support our 
school system.
  Let's do both. We have some in the Chamber who say, let's ignore the 
issue of school finance; say that doesn't exist. You cannot do that. 
You cannot cast a blind eye to that problem. It is a problem that is 
serious and growing. Governor Leavitt from Utah sent me a note about it 
along with the study of the Institute for States Studies describing 
this.
  I ask unanimous consent that the report be printed in the Record.
  There being no objection, the report was ordered to be printed in the 
Record, as follows:

                                  Institute for State Studies,

                                 Salt Lake City, UT, Oct. 2, 2001.

  New Study Shows Sales Tax Revenue Losses From E-Commerce 41 Percent 
                     Higher Than Previous Estimates


   States, localities projected to lose $54.8 billion a year by 2011

       Washington.--New figures released here today show that 
     state and local governments will lose $13.3 billion in 
     revenue this year--41 percent higher than previously 
     estimated--because taxes are not paid on remote online 
     purchases as they are on ``Main Street'' purchases. Projected 
     annual revenue losses jump to $45.2 billion in 2006 and a 
     staggering $54.8 billion by 2011 as a result of skyrocketing 
     business-to-business e-commerce activity.
       This continued loss of revenue highlights fairness issues 
     for Main Street retailers, taxpayers and state and local 
     governments. It creates difficult choices for the 45 states 
     and the District of Columbia that rely on sales tax revenue; 
     raise sales, income and/or property tax rates to compensate; 
     cut services like education and public safety; or a 
     combination of both.
       The study was prepared by the Center for Business and 
     Research at the University of Tennessee, the pioneers in 
     research on the subject. Data was collected by Forrester 
     Research, Inc., the recognized leader in e-commerce research. 
     The study was commissioned by the Institute for State 
     Studies, a nonprofit public policy group. The study 
     quantifies the amount of sales tax revenue states and local 
     governments stand to lose in 2001, 2006 and 2011 because 
     remote Internet-based retailers are not required to collect 
     and remit sales tax. The U.S. Congress is currently debating 
     how to address this inequity. The report is available online 
     at www.statestudies.org.
 A broad coalition of retailers, shopping center owners, 
     state and local government leaders and national associations 
     has for some time maintained that current tax policy as it 
     applies to e-commerce isn't fair. They argue that the lack of 
     a ``level playing field'' in collecting sales taxes leads to 
     significant fairness issues for consumers and businesses. It 
     also creates huge revenue losses for states and local 
     governments, affecting their ability to provide citizens with 
     quality education, effective public safety and other basic 
     services. This research supports those assertions.
       For example, Texas will lose $1.2 billion to e-commerce 
     sales tax erosion this year. In Florida, the number is $932.2 
     million. Illinois will lose out on $532.9 million, Michigan 
     will lose $502.9, Tennessee will lose $362.3 million, 
     Maryland, $194.4 million. In the smallest states, the revenue 
     erosion is large as well. Wyoming will lose $26.1 million; 
     Rhode Island, $36.8 million; North Dakota, $26.4 million; and 
     the District of Columbia, $36.7 million.
       In a decade, the revenue losses grow tremendously, 
     according to Donald Bruce, assistant professor at the 
     University of Tennessee and the study's co-author. ``By 2011, 
     the potential revenue loss in Texas alone will be $4.8 
     billion--that's almost 10 percent of the state's total 
     expected tax collections. To make up for this revenue, 
     Texas's current statewide sales tax rate of 6.25 percent 
     would have to rise to 7.86 percent.''
       Historically, states and localities have responded to this 
     erosion in sales tax revenue by raising tax rates, Bruce 
     pointed out. In 1970, the median sales tax rate in the U.S. 
     was 3.25 percent. This rose to 4.0 percent in 1980 and 5.0 
     percent in 1990. Fifteen states now have rates at or above 
     6.0 percent.
       ``We determined that, to make up for revenue losses due to 
     e-commerce, states and local governments would have to raise 
     their

[[Page S10303]]

     sales tax rates between 0.83 and 1.73 percentage points by 
     2011,'' said William F. Fox, study co-author and University 
     of Tennessee professor. ``When other factors causing sales 
     tax revenue to shrink are added in, the projected tax 
     increases are even higher.''
       In addition to erosion from remote sales, states and local 
     governments are facing a loss of sales tax revenue from two 
     other major trends: 1) a greater consumption of generally 
     non-taxable services rather than taxable goods; and 2) a 
     continual practice of state-legislated exemptions that are 
     narrowing the tax base.
       Steps are being taken to simplify the sales tax system, 
     such as streamlining the rules and regulations of the 7,500 
     taxing jurisdictions in the U.S. This Streamlined Sales Tax 
     Project is sponsored by a consortium of government 
     associations led by the National Governors Association. So 
     far, 32 states are participating in the effort to simplify 
     tax rates and definitions of taxable goods, and to certify 
     software that will make it easier for retailers, both on Main 
     Street and on the Internet, to collect sales taxes. Nineteen 
     states have enacted simplification legislation; another 10 
     have introduced legislation for consideration.
       As part of the ongoing e-commerce sales tax debate, the 
     Institute for State Studies will use this research data to 
     educate state, local and national officials about the 
     magnitude of the issue. The Institute for State Studies is a 
     nonprofit center for public policy research and education 
     located at Western Governors University. The foundation 
     focuses on three areas: public policy and governance issues 
     created by new technology, advancing competency-based 
     measurement and certification in education, and increasing 
     speed and decreasing cost in environmental progress.

    PROJECTED STATE AND LOCAL REVENUE LOSSES FROM E-COMMERCE ACTIVITY
                          [Figures in millions]
------------------------------------------------------------------------
                State                    2001        2006        2011
------------------------------------------------------------------------
Alabama.............................      $177.4      $604.3      $734.4
Arkansas............................       143.8       488.0       590.9
Arizona.............................       231.1       799.2       982.5
California..........................     1,750.0     5,952.0     7,225.0
Colorado............................       200.7       686.4       836.2
Connecticut.........................       190.5       648.9       788.2
District of Columbia................        36.7       123.1       147.7
Florida.............................       932.2     3,214.0     3,944.4
Georgia.............................       439.0     1,517.8     1,865.6
Hawaii..............................       105.1       359.2       438.3
Iowa................................       111.8       372.3       443.7
Idaho...............................        44.4       151.5       184.6
Illinois............................       532.9     1,795.3     2,161.7
Indiana.............................       215.5       728.5       879.8
Kansas..............................       134.4       451.5       542.2
Kentucky............................       158.7       535.5       645.8
Louisiana...........................       302.6     1,008.1     1,202.5
Massachusetts.......................       200.6       683.0       828.6
Maryland............................       194.4       664.3       809.2
Maine...............................        43.1       146.4       177.5
Michigan............................       502.9     1,696.2     2,043.6
Minnesota...........................       270.6       920.6     1,117.2
Missouri............................       261.6       884.1     1,066.7
Mississippi.........................       136.5       462.8       560.0
North Carolina......................       293.4     1,010.9     1,239.4
North Dakota........................        26.4        87.6       103.9
Nebraska............................        70.9       238.7       287.3
New Jersey..........................       337.8     1,150.0     1,396.1
New Mexico..........................       129.1       440.2       535.4
Nevada..............................       126.3       441.7       549.0
New York............................     1,052.9     3,569.2     4,318.4
Ohio................................       446.7     1,502.2     1,805.9
Oklahoma............................       202.8       670.6       794.5
Pennsylvania........................       446.4     1,503.4     1,811.0
Rhode Island........................        36.8       124.5       150.4
South Carolina......................       153.4       525.0       640.5
South Dakota........................        39.4       133.4       161.3
Tennessee...........................       362.3     1,242.8     1,518.7
Texas...............................     1,162.1     3,957.0     4,805.6
Utah................................       104.5       359.0       439.2
Virginia............................       238.5       817.0       997.2
Vermont.............................        21.0        71.7        87.2
Washington..........................       416.5     1,427.3     1,745.3
Wisconsin...........................       213.5       721.5       871.0
West Virginia.......................        70.1       232.4       276.2
Wyoming.............................        26.1        85.2       100.0
                                     -----------------------------------
  Total.............................    13,293.1    45,204.3    54,849.5
------------------------------------------------------------------------

  Mr. DORGAN. Mr. President, virtually every Governor, or 45 Governors 
in this country believe strongly we ought to do this, give the States 
the ability to develop a compact to dramatically simplify their revenue 
systems. Then, with that compact, we would allow or require the remote 
sellers to collect the taxes owed.
  I am introducing the legislation on behalf of myself, Senator Breaux, 
and Senator Hutchison, that would extend until June 30 the moratorium 
that now exists. Between now and June 30 I believe Congress has a 
responsibility to solve this problem. I don't want there to be and will 
not support punitive or discriminatory taxes on the Internet. I don't 
believe we ought to be taxing access to the Internet, and it would not 
matter to me if we shut it off even for the grandfathered States. The 
issue of extending the moratorium is not a problem with me.
  But we must not extend the moratorium and ignore the other 
significant problem that exists; and that is, the erosion of billions 
and billions of dollars that are expected to come in to our State and 
local government coffers to support our schools. That erosion, to the 
tune of what is expected to be $54 billion in the year 2011 is a very 
serious problem and serves no purpose for people to talk only of 
extending the moratorium and not about the other problem. Let's solve 
both problems at once on behalf of America's kids and on behalf of 
remote sellers.
  I happen to think the growth of the Internet is a wonderful thing. I 
think catalog sales are a wonderful thing. I think Main Street 
businesses are great. I think all the commerce opportunities that exist 
in this country enhance this country. The Main Street business people 
say to us: We rent the business, we hire the employees, we carry the 
inventory, and if you come to our Main Street business and buy a 
product, we must collect the sales tax. But someone a thousand miles 
away who competes by catalog or television monitor can make the same 
sale and sell it without collecting the sales tax. It is true the buyer 
has a tax responsibility, but the buyer almost never remits that small 
use tax to the State when that sale is made.
  Those are the issues. I call attention today to the fact that some 
colleagues introduced a piece of legislation that calls for a 
moratorium for 2 years, some are talking about 5 years. One was 
introduced, I believe, by my colleague from Virginia and my colleague 
from California for a 5-year extension. Another was introduced for a 2-
year extension. I believe both are too long. I believe the extension 
until June 30 of next year, with a requirement we get to work, will 
give the States and the Internet sellers and remote sellers the time 
they need to get to work and solve this problem. Let's extend it 
forever as far as I am concerned, but we should fix the long-term 
problem as we do so.
  Mr. President, 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. 1504

       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 Tax Moratorium 
     Extension Act''.

     SEC. 2. EXTENSION OF INTERNET TAX FREEDOM ACT MORATORIUM 
                   THROUGH JUNE 30, 2002.

       (a) In General.--Section 1101(a) of the Internet Tax 
     Freedom Act (47 U.S.C. 151 nt.) is amended by striking ``3 
     years after the date of enactment of this Act--'' and 
     inserting ``on June 30, 2002:''.
       (b) Conforming Amendments.--Section 1101(a) of that Act (47 
     U.S.C. 151 nt.) is further amended--
       (1) by striking ``taxes'' in paragraph (1) and inserting 
     ``Taxes'';
       (2) by striking ``1998; and'' in paragraph (1) and 
     inserting ``1998.''; and
       (3) by striking ``multiple'' in paragraph (2) and inserting 
     ``Multiple''.

     SEC. 3. SENSE OF THE CONGRESS.

       It is the sense of the Congress that State governments and 
     interested business organizations should expedite efforts to 
     develop a streamlined sales and use tax system that, once 
     approved by Congress, would allow sellers to collect and 
     remit sales and use taxes without imposing an undue burden on 
     interstate commerce.
                                 ______