[Congressional Record Volume 149, Number 144 (Wednesday, October 15, 2003)]
[Senate]
[Pages S12567-S12569]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        INTERNET TAX FREEDOM ACT

  Mr. WYDEN. Mr. President, the Senate knows, 5 years ago I was the 
sponsor in the Senate of the Internet Tax Freedom Act. This is law that 
was designed to ensure that the Internet be free of discriminatory 
taxes on Internet commerce and a variety of Internet activities. And it 
was designed to encourage the growth of the Internet.
  The law has unquestionably worked. There is absolutely no evidence of 
anyone who has been harmed by the inability to discriminate against 
electronic commerce.
  For many months now, Senators of both political parties have been 
working together to try to ensure the law that expires shortly would be 
reauthorized, and Senators have been working on a cooperative and 
bipartisan basis to go forward and reauthorize this law that has 
worked.
  I had been under the impression that we were just about ready to 
bring this bill to the floor, but in the last few days a proposal that 
I find truly alarming has been brought forward by some of the State and 
local officials. I come to the floor this morning to make sure the 
Senate is actually familiar with the language that is being brought 
forward.
  Mr. President, I ask unanimous consent that this legislation I am 
going to discuss be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                            Non-Texas Markup


                      moratorium on internet taxes

       Pub. L. 105-277, div. C, title XI, Oct. 21, 1998, 112 Stat. 
     2681-719, provided that:

     SEC. 1101. MORATORIUM.

       (a) Moratorium.--No State or political subdivision thereof 
     shall impose any of the following taxes:
       (1) taxes on Internet access.
       (2) multiple or discriminatory taxes on electronic 
     commerce.
       (b) Preservation of State and Local Taxing Authority.--
       (1) In general.--Except as provided in this section, 
     nothing in this title shall be construed to modify, impair, 
     or supersede, or authorize the modification, impairment, or 
     superseding of, any State or local law pertaining to taxation 
     that is otherwise permissible by or under the Constitution of 
     the United States other Federal law [and in effect] on the 
     date of enactment of this Act (Oct. 21, 1998).
       (2) Special rules.--If charges for Internet access are 
     aggregated with and not separately stated from charges that 
     are subject to taxation, then the charges for Internet access 
     may be subject to taxation unless the Internet access service 
     provider can reasonably identify Internet access charges not 
     subject to taxation from its books and records kept in the 
     regular course of business for other purposes
       (c) Liabilities and Pending Cases.--Nothing in this title 
     affects liability for taxes accrued and enforced before the 
     date of enactment of this Act, nor does this title affect 
     ongoing litigation relating to such taxes.
       [(d) Definition of Generally Imposed and Actually 
     Enforced.--For purposes of this section, a tax has been 
     generally imposed and actually enforced prior to October 1, 
     1998, if, before that date, the tax was authorized by statute 
     and either--
       [(1) a provider of Internet access services had a 
     reasonable opportunity to know by virtue of a rule or other 
     public proclamation made by the appropriate administrative 
     agency of the State or political subdivision thereof, that 
     such agency has interpreted and applied such tax to Internet 
     access services; or
       [(2) a State or political subdivision thereof generally 
     collected such tax on charges for Internet access.]
       (e) Exception to Moratorium.--
       (1) In general.--Subsection (a) shall also not apply in the 
     case of any person or entity who knowingly and with knowledge 
     of the character of the material, in interstate or foreign 
     commerce by means of the World Wide Web, makes any 
     communication for commercial purposes that is available to 
     any minor and that includes any material that is harmful to 
     minors unless such person or entity has restricted access by 
     minors to material that is harmful to minors--
       (A) by requiring use a credit card, debit account, adult 
     access code, or adult personal identification number;
       (B) by accepting a digital certificate that verifies age; 
     or
       (C) by any other reasonable measures that are feasible 
     under available technology.

[[Page S12568]]

       (2) Scope of exception.--For purposes of paragraph (1), a 
     person shall not be considered to (be) making a communication 
     for commercial purposes of material to the extent that the 
     person is--
       (A) a telecommunications carrier engaged in the provision 
     of a telecommunications service;
       (B) a person engaged in the business of providing an 
     Internet access service;
       (C) a person engaged in the business of providing an 
     Internet information location tool; or
       (D) similarly engaged in the transmission, storage 
     retrieval, hosting, formatting, or translation (or any 
     combination thereof) of a communication made by another 
     person, without selection or alteration of the communication.
       (3) Definitions.--In this subsection:
       (A) By means of the world wide web.--The term ``by means of 
     the World Wide Web'' means by placement of material in a 
     computer server-based file archive so that it is publicly 
     accessible, over the Internet, using hypertext transfer 
     protocol, file transfer protocol, or other similar protocols.
       (B) Commercial purposes; engaged in the business.--
       (i) Commercial purposes.--A person shall be considered to 
     make a communication for commercial purposes only if such 
     person is engaged in the business of making such 
     communications.
       (ii) Engaged in the business.--The term ``engaged in the 
     business'' means that the person who makes a communication, 
     or offers to make a communication, by means of the World Wide 
     Web, that includes any material that is harmful to minors, 
     devotes time, attention, or labor to such activities, as a 
     regular course of such person's trade or business, with the 
     objective of earning a profit as a result of such activities 
     (although it is not necessary that the person make a profit 
     or that the making or offering to make such communications be 
     the person's sole or principal business or source of income). 
     A person may be considered to be engaged in the business of 
     making, by means of the World Wide Web, communications for 
     commercial purposes that include material that is harmful to 
     minors, only if the person knowingly causes the material that 
     is harmful to minors to be posted on the World Wide Web or 
     knowingly solicits such material to be posted on the World 
     Wide Web.
       (C) Internet.--The term ``Internet'' means collectively the 
     myriad of computer and telecommunications facilities, 
     including equipment and operating software, which comprise 
     the interconnected world-wide network of networks that employ 
     the Transmission Control Protocol/Internet Protocol, or any 
     predecessor or successor protocols to such protocol, to 
     communicate information of all kinds by wire or radio.
       (D) Internet access service.--The term ``Internet access 
     service'' means a service that enables users to access 
     content, information, electronic mail, or other services 
     offered over the Internet and may also include access to 
     proprietary content, information, and other services as part 
     of a package of services offered to consumers. Such term does 
     not include telecommunications services, except to the extent 
     such services are used to provide Internet access.
       (E) Internet information location tool.--The term 
     ``Internet information location tool'' means a service that 
     refers or links users to an online location on the World Wide 
     Web. Such term includes directories, indices, references, 
     pointers, and hypertext links.
       (F) Material that is harmful to minors.--The term 
     ``material that is harmful to minors'' means any 
     communication, picture, image, graphic image file, article, 
     recording, writing, or other matter of any kind that is 
     obscene or that--
       (i) the average person, applying contemporary community 
     standards, would find, taking the material as a whole and 
     with respect to minors, is designed to appeal to, or is 
     designed to pander to, the prurient interest;
       (ii) depicts, describes, or represents, in a manner 
     patently offensive with respect to minors, an actual or 
     simulated sexual act or sexual contact, an actual or 
     simulated normal or perverted sexual act, or a lewd 
     exhibition of the genitals or post-pubescent female breast; 
     and
       (iii) taken as a whole, lacks serious literary, artistic, 
     political, or scientific value for minors.
       (G) Minor.--The term ``minor'' means any person under 17 
     years of age.
       (H) Telecommunications carrier; telecommunications 
     service.--The terms ``telecommunications carrier'' and 
     ``telecommunications service'' have the meanings given such 
     terms in section 3 of the Communications Act of 1934 (47 
     U.S.C. 153).
       (f) Additional Exception to Moratorium.--
       (1) In general.--Subsection (a) shall also not apply with 
     respect to an Internet access provider, unless, at the time 
     of entering into an agreement with a customer for the 
     provision of Internet access services, such provider offers 
     such customer (either for a fee or at no charge) screening 
     software that is designed to permit the customer to limit 
     access to material on the Internet that is harmful to minors.
       (2) Definitions.--In this subsection:
       (A) Internet access provider.--The term ``Internet access 
     provider'' means a person engaged in the business of 
     providing a computer and communications facility through 
     which a customer may obtain access to the Internet, but does 
     not include a common carrier to the extent that it provides 
     only telecommunications services.
       (B) Internet access services.--The term ``Internet access 
     services'' means the provision of computer and communications 
     services through which a customer using a computer and modem 
     or other communications device may obtain access to the 
     Internet, but does not include telecommunications service 
     provided by a common carrier.
       (C) Screening software.--The term ``screening software'' 
     means software that is designed to permit a person to limit 
     access to material on the Internet that is harmful to minors.
       (3) Applicability.--Paragraph (1) shall apply to agreements 
     for the provision of Internet access services entered into on 
     or after the date that is 6 months after the date of 
     enactment of this Act (Oct. 21, 1998).

     SEC. 1105. [``SEC. 1104.] DEFINITIONS.

       For the purposes of this title:
       (1) Bit tax.--The term ``bit tax'' means any tax on 
     electronic commerce expressly imposed on or measured by the 
     volume of digital information transmitted electronically, or 
     the volume of digital information per unit of time 
     transmitted electronically, but does not include taxes 
     imposed on the provision of telecommunications services.
       (2) Discriminatory tax.--The term ``discriminatory tax'' 
     means
       (A) any tax imposed by a State or political subdivision 
     thereof on electronic commerce that--
       (i) is not generally imposed and legally collectible by 
     such State or such political subdivision on transactions 
     involving similar property, goods, services, or information 
     accomplished through other means;
       (ii) is not generally imposed and legally collectible at 
     the same rate by such State or such political subdivision on 
     transactions involving similar property, goods, services, or 
     information accomplished through other means, unless the rate 
     is lower as part of a phase-out of the tax over not more than 
     a 5-year period;
       (iii) imposes an obligation to collect or pay the tax on a 
     different person or entity than in the case of transactions 
     involving similar property, goods, services, or information 
     accomplished through other means;
       (iv) establishes a classification of Internet access 
     service providers or online service providers for purposes of 
     establishing a higher tax rate to be imposed on such 
     providers than the tax rate generally applied to providers of 
     similar information services delivered through other means; 
     or
       (B) any tax imposed by a State or political subdivision 
     thereof, if--
       (i) [except with respect to a tax (on Internet access) that 
     was generally imposed and actually enforced prior to October 
     1, 1998,] the sole ability to access a site on a remote 
     seller's out-of-State computer server is considered a factor 
     in determining a remote seller's tax collection obligation; 
     or
       (ii) a provider of Internet access service or online 
     services is deemed to be the agent of a remote seller for 
     determining tax collection obligations solely as a result of
       (I) the display of a remote seller's information or content 
     on the out-of-State computer server of a provider of Internet 
     access service or online services; or
       (II) the processing of orders through the out-of-State 
     computer server of a provider of Internet access service or 
     online services.
       (3) Electronic commerce.--The term ``electronic commerce'' 
     means any transaction conducted over the Internet or through 
     Internet access, comprising the sale, lease, license, offer, 
     or delivery of property, goods, services, or information, 
     whether or not for consideration, and includes the provision 
     of Internet access.
       (4) Internet.--The term ``Internet'' means collectively the 
     myriad of computer and telecommunications facilities, 
     including equipment and operating software, which comprise 
     the interconnected world-wide network of networks that employ 
     the Transmission Control Protocol/Internet Protocol, or any 
     predecessor or successor protocols to such protocol, to 
     communicate information of all kinds by wire or radio.
       (5) Internet access.--The term ``Internet access--
       (A) [The term ``Internet access] means a service that 
     enables users to access content, information, electronic 
     mail, or other services offered over the Internet, and may 
     also include access to proprietary content, information, and 
     other services as part of a package of services offered to 
     users, [such term does not include telecommunications 
     services, except to the extent such services are used to 
     provide Internet access.]
       (B) The term ``Internet access'' as described in subsection 
     (A) above is a service directly employed by its purchaser, 
     regardless of the medium by which such service is provided. 
     The term ``Internet access'' does not include the provision 
     of television programs, games, books, music, motion pictures, 
     newspapers, magazines, software, telecommunications services, 
     voice communication, financial services, research services, 
     information services, or other such products or services, or 
     products or services that are available for purchase in any 
     form other than over the Internet. Nothing in this title 
     shall be construed to modify, impair, or supersede, or 
     authorize the modification, impairment, or superseding of, 
     any State or local law pertaining to taxation that is 
     otherwise permissible by or under the Constitution of the 
     United States or other Federal

[[Page S12569]]

     law as of the date of original enactment of this Act (Oct. 
     21, 1998).
       (6) Multiple tax.--
       (A) In general.--The term ``multiple tax'' means any tax 
     that is imposed by one State or political subdivision thereof 
     on the same or essentially the same electronic commerce that 
     is also subject to another tax imposed by another State or 
     political subdivision thereof (whether or not at the same 
     rate or on the same basis, without a credit (for example, a 
     resale exemption certificate) for taxes paid in other 
     jurisdictions.
       (B) Exception.--Such term shall not include a sale or use 
     tax imposed by a State and 1 or more political subdivisions 
     thereof on the same electronic commerce or a tax on persons 
     engaged in electronic commerce which also may have been 
     subject to a sales or use tax thereon.
       (C) Sales or use tax.--For purposes of subparagraph (B), 
     the term ``sales or use tax'' means a tax that is imposed on 
     or incident to the sale, purchase, storage, consumption, 
     distribution, or other use of tangible personal property or 
     services as may be defined by laws imposing such tax and 
     which is measured by the amount of the sales price or other 
     charge for such property or service.
       (7) State.--The term ``State'' means any of the several 
     States, the District of Columbia, or any commonwealth, 
     territory, or possession of the United States.
       (8) Tax.--
       (A) In general.--The term ``tax'' means--
       (i) any charge imposed by any governmental entity for the 
     purpose of generating revenues for governmental purposes, and 
     is not a fee imposed for a specific privilege, service, or 
     benefit conferred; or
       (ii) the imposition on a seller of an obligation to collect 
     and to remit to a governmental entity any sales or use tax 
     imposed on a buyer by a governmental entity.
       (B) Exception.--Such term does not include any franchise 
     fee or similar fee imposed by a State or local franchising 
     fee or similar fee imposed by a State or local franchising 
     authority, pursuant to section 622 or 653 of the 
     Communications Act of 1934 (47 U.S.C. 542, 573), or any other 
     fee related to obligations or telecommunications carriers 
     under the Communications Act of 1934 (47 U.S.C. 151 et seq.).
       (9) Telecommunications service.--The term 
     ``telecommunications service'' has the meaning given such 
     term in section 3(46) of the Communications Act of 1934 (47 
     U.S.C. 153(46)) and includes communications services (as 
     defined in section 4251 of the Internal Revenue Code of 1986 
     (26 U.S.C. 4251)).
       (10) Tax on internet access.--The term ``tax on Internet 
     access'' means [a tax on Internet access, including] the 
     enforcement or application of any new or preexisting tax on 
     the sale or use of Internet access [services unless such tax 
     was generally imposed and actually enforced prior to October 
     1, 1998].

  Mr. WYDEN. Mr. President, what some State and local officials now 
seek to do is to change the definition of ``Internet access,'' which, 
under current law, cannot be taxed. In doing so, what it would do is 
give States and localities explicit permission to tax what Internet 
users do once they get on line. That would mean you could have games, 
music, magazines, newspapers, information services, financial services, 
research services, or other products of services, in effect, facing a 
barrage of new taxes.
  The phrase ``you've got mail'' would be replaced with ``you owe 
taxes.'' That is what this proposal would mean to 142 million Americans 
with household Internet access. Under this proposal, the consumer could 
be taxed every time they send an e-mail, every time they read their 
local newspaper online or check the score of a football game.
  Those who are making this proposal are not going to come out publicly 
and talk about their ideas for taxing e-mail. There isn't a headline in 
the language that I have put into the Congressional Record today that 
says: Watch out, our plan is going to tax e-mail. But there is no 
question that a clear reading of this legislative language will mean 
just that. Consumers could be taxed every time they check a bank 
statement online. They could be taxed for paying their bills online. 
They could be taxed each time they check the sports scores online or 
listen to the weather on streaming radio. Every time a consumer turns 
to Google research service, they could be taxed for each key stroke. If 
that happened, no question, some in my office would just go bankrupt.
  As the Chair knows, being so instrumental in working with me and 
members of the Senate Commerce Committee, this law has worked. It has 
been a bipartisan law based on the simple proposition that you would 
treat activity online just as you treat activity online. Some made dire 
predictions about the law originally that States and localities would 
be denied the opportunity to gain revenue for essential services. It 
has been clear that they have been proven incorrect. Internet commerce 
is now just a small part of our economy. In fact, what we have seen is 
a merger of what I call bricks and clicks, traditional commerce with 
Internet commerce. We have not seen problems under current law.
  But by redefining the definition of Internet access, as the proposal 
does that I have put into the Congressional Record today, in effect you 
give a green light to State and local authorities all across the 
country to tax services that are integral to Internet access, including 
e-mail.
  I believe this proposal would make wider the digital divide in this 
country. I think the new taxes would restrict growth in the Internet. 
The American consumer needs to know exactly what some of these taxing 
authorities are really up to. What they really want is either to stop 
the ban on Internet access taxes from becoming permanent or they are 
looking for statutory language which would stick consumers with 
hundreds of millions of dollars in new taxes each year.
  In my view, either option would be unacceptable to a majority of 
Senators. I hope, as the negotiations originally proceeded in the 
Commerce Committee and now in the Finance Committee, that there would 
be an effort to make the ban on discriminatory taxes on Internet 
commerce permanent and, in particular, let us ensure that the hard hit 
American consumer is protected from unfair tax schemes such as those I 
have outlined this morning.
  I yield the floor.
  The PRESIDENT pro tempore. Who yields time? The Senator from Texas.
  Mrs. HUTCHISON. Mr. President, it is my understanding that our side 
took 3 minutes early. So how much time is remaining on the other side?
  The PRESIDENT pro tempore. The majority has 26 minutes 58 seconds. 
The minority has 13 minutes 34 seconds.
  Mrs. HUTCHISON. Mr. President, I will proceed. If a Member of the 
other side comes, I will be happy to yield to them under their time. 
But I will start with the majority time.
  The PRESIDENT pro tempore. Without objection, the Senator from Texas 
is recognized.

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