[Congressional Record Volume 150, Number 54 (Monday, April 26, 2004)]
[Senate]
[Pages S4337-S4339]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           INTERNET TAXATION

  Mr. WYDEN. Mr. President, this week the Senate will spend most of its 
time on the question of taxation of the Internet. Having been the 
principal sponsor of the legislation on this subject in the Senate 
twice, I would be the first to say this subject inherently is about as 
interesting as prolonged root canal work. But at the same time, I think 
it is fair to say the decisions the Senate makes with respect to this 
subject will say a whole lot about the future of the Internet.
  For example, the decisions will determine, to some extent, whether e-
mail

[[Page S4338]]

and spam filters and Google searches and Web sites and instant 
messaging are singled out for discriminatory tactics. The Senate is 
going to have to make some decisions about whether Internet access 
through cable is tax free, but consumers who choose DSL Internet access 
would get taxed.
  I wanted to take just a few minutes this afternoon to go through some 
of the history with respect to this issue, and particularly suggest 
that I think the key, as the Senate takes up this subject, is to keep 
in mind two principles that have been important to me.
  First has been the question of technological neutrality. I think it 
is absolutely key that as the Senate looks to make technology a policy 
that we ensure there is fair treatment and true competition among all 
of the various technologies that drive decisions in this field.
  I say to the President pro tempore of the Senate, I can recall when 
we were looking at this legislation initially, and the Senator from 
Alaska was enormously helpful to me. What we found out was, for 
example, early on, if you bought the Wall Street Journal in some States 
and you got the interactive edition, you paid a big tax, but if you 
bought it the traditional way, through snail mail, for example, there 
was no tax. That, it seemed to me, was not technologically neutral. 
That did not ensure we would have competition in the greatest possible 
way to benefit the consumer, and that was very much at the heart of my 
concern as I authored in the Senate the first internet tax freedom 
bill.
  The second concern that was foremost in my mind was the question of 
how this would affect our States and localities with respect to 
revenue. At that time, we had a number of Governors, mayors, county 
officials, and others expressing tremendous concern with respect to 
revenue. I have always tried to take those concerns very seriously. 
That is why I wanted to outline some of what was said during the years 
when those early bills were debated because I think we are going to 
have a repeat of those discussions.
  To some extent, some of the State and local officials who raised 
concerns about the revenue impact of what we did during the first two 
iterations of the internet tax freedom bill have dusted off the 
arguments and, in effect, brought them to the Senate again.
  To go through some of the history, if I might, back in 1997, the 
National Governors Association, an organization I tremendously respect, 
said the Internet Tax Freedom Act would ``cause the virtual collapse of 
the State and local revenue base.'' But the record shows that the 
following year, State and local sales tax revenues were up $7.2 
billion.
  Let me repeat that. We were told in 1997 that we would have a virtual 
collapse of the State and local revenue base. The following year, we 
saw a significant increase in local and State tax revenues.
  In 2001, when we dealt with the issue again, opponents said:

       The growth of e-commerce represents a significant threat to 
     State and local tax revenues and they might lose tax revenue 
     in the neighborhood of $20 billion in 2003.

  Once again, the record shows otherwise. According to the National 
Association of State Budget Officers, State sales tax collections rose 
from $134.5 billion in 2001 to $160.4 billion in 2003, an increase of 
more than $15 billion in just 2 years.
  We saw this pattern continue in 1998 as well when the National League 
of Cities said:

       A tax-free Internet would place Main Street retailers at 
     competitive disadvantage and would doom the sales tax.

  But e-commerce still only represented 1.6 percent of total retail 
sales in 2003, while brick-and-mortar retail sales grew from $2.6 
trillion in 1998 to $3.4 trillion in 2003, according to the Commerce 
Department.
  In three instances with respect to projections by the National 
Governors Association, the National Association of State Budget 
Officers, and the National League of Cities, as the Senate dealt with 
the two iterations of the tax freedom bill, when this body was told 
that tremendous amounts of revenue would be lost, in each instance, as 
I have just documented this afternoon, actual revenues collected went 
up rather than revenues going down.
  The reason I have taken the time to go through that is I am sure 
during the course of this week, we are going to hear the same kinds of 
projections. We are going to see State and local officials come and say 
if the Senate reauthorizes this law that has been reauthorized twice, 
pretty much Western civilization is going to come to an end. They are 
going to say they are going to be in dire straits with respect to the 
funds they are going to need for critical services and that they will 
find all form of financial calamity.
  I am very interested in addressing those concerns. I have great 
empathy for the challenge of funding State and local services, but I 
just want the Senate to know, and why I am focusing on this point at 
the start of the debate, that again and again over the last 7 years, as 
this debate has gone forward, the Senate has been given these 
projections about calamitous losses to our States and localities if the 
internet tax freedom bill is passed, and as I have pointed out, in 
instance after instance, revenue has gone up rather than down.
  I think it is fair to say that all of these technologies, in the 
issue of whether someone gets internet access over DSL or whether they 
obtain it through cable, are complicated. That is why I, Senator Allen, 
Senator McCain, and others who have worked on this issue have tried to 
spend time talking to all concerns. Frankly, we have made a number of 
changes in an effort to try to accommodate the issues brought up by 
those who do not share our view.
  For example, we have in several instances tightened definitions of 
Internet access that have been raised. We have agreed to a request for 
new statutory language on what is called bundling, where various 
technologies are bundled together. We have added language to protect a 
host of taxes for States and localities, such as property and income 
taxes that have never been affected by the original legislation, but 
because there was concern on the part of States and localities, we 
wanted to drive home our intent not to have these areas taxed.
  We have also agreed to a request for provisions to protect universal 
service, regulatory proceedings, and we also agreed to deal with some 
requests from States for what is called grandfathering so as to protect 
existing sources of revenue.
  At the end of the day, we want to make sure that consumers who now 
hear the message ``You've got mail'' don't get a message, ``You've got 
special taxes.'' That is what this issue has always been about. It is 
clear from the history of this legislation that we do not want the 
Internet to get preferential treatment, nor do we want it singled out 
for discriminatory treatment. That is what I sought to do when we began 
this debate late in 1996. I pointed out, for example, how a newspaper 
that was purchased online would be taxed, but a newspaper that was 
purchased in the traditional way would not be taxed. That is not 
technological neutrality.
  That is what the sponsors of this legislation are seeking to protect. 
The alternative that several of our colleagues are interested in would 
take a very different approach. That alternative would essentially 
break up Internet access into individual components so that if they 
chose to do so, States and localities could tax each one of those 
components.
  Under that, for example, Internet consumers could be subjected to 
close to 400 separate telecommunications taxes, administered by 
something like 10,000 different jurisdictions.
  In effect, each piece of e-mail, the filtering systems that families 
use to block pornography and spam and each Web site, each blackberry 
message conceivable is exposed to tax by scores of jurisdictions. Each 
town that chooses to do so could tax the e-mail flowing through its 
phone or cable lines even if the e-mail was not being sent from or to 
someone in the jurisdiction. I think it is fair to say if even a modest 
portion of the jurisdictions that could impose these taxes chose to do 
so, we would be talking about a massive increase in the cost of 
Internet access to every consumer in America.
  What I think this is really all about is that the States and 
localities essentially see the Internet as the last cash cow in the 
pasture. In effect, they have been barred by the courts from going 
after phone sales. They have been barred by the courts from going after

[[Page S4339]]

mail order. So now along comes the Internet, and the Internet is being 
seen as an enormous cash opportunity.
  The fact is, Internet sales in 2003 are still only 1.6 percent of 
total retail sales. They grew at a far more modest rate than brick and 
mortar sales grew over the last few years, but that is not even the 
central point.
  All of us understand the value of the Internet as a tool for 
businesses and communication and to improve health care and extend 
cultural opportunities. The Chair and I share a State with mostly small 
towns and folks who have to go great distances, and the Internet is one 
of the best tools, if not the ideal tool, for compensating for major 
distances from commercial centers and major population centers.
  So I hope my colleagues will think through the history I have 
outlined with respect to the revenue protections and the question of 
whether vast amounts of revenue are going to be lost because I think 
the record shows those dire projections to State and localities have 
not come to pass.
  I hope my colleagues will also see the principle of technological 
neutrality that I sought 7 years ago still is a sound one and one that 
the Senate ought to preserve. It does not make sense to me to say, for 
example, that cable Internet access ought to be tax free and then stick 
it to consumers who choose DSL Internet access.
  So we are going to be dealing with these issues over the course of 
the week, but I wanted to take a few minutes to make clear that we are 
going to be protecting the States and localities from property and 
income taxes and telecommunications carriers. They are concerned about 
it. We agreed to their proposal to deal with what is called bundling to 
make sure that Internet service providers cannot hide from tax services 
that would otherwise be subject to bundling. We narrowed the definition 
of Internet access so as to try to find common ground.
  States and localities were concerned about sweeping up all 
telecommunication services into Internet access so that no 
telecommunication service could be taxed. The changes in definitions 
that we made narrowed the definition and ensured that the Senate would 
still keep up with the significant technological developments in the 
field.
  The bill ensures that all platforms, whether dial-up, digital 
subscriber lines, cable mode, satellite, wireless, or any other 
technology platform, as well as the components used to provide Internet 
access, would be covered by the moratorium.
  So I think we are going to have an important debate this week. I 
expect to spend a fair amount of time on the Senate floor as we discuss 
it. This has never been a partisan issue. I have worked on this 
legislation with Chairman McCain and with Senator Allen over the last 
few years since he has come to the Senate. I think ultimately the 
decisions that the Senate makes are going to say a whole lot about 
where the Senate wants Internet to go in the future.

  I cannot believe the Senate wants to subject e-mail, blackberries, 
and a variety of technologies to scores of new and discriminatory 
taxes. That is what this debate has always been about: should the 
Internet be subject to discriminatory taxation. If a jurisdiction, for 
example, taxes brick And mortar sales, they can tax sales online and 
through the Internet in exactly the same kind of fashion.
  I hope the Senate can find common ground on this legislation this 
week and continue a law that has worked. I am proud to be able to have 
been a part of this consideration over the last 7 years, and I hope we 
can pass reauthorization for a third time so as to promote true 
competition between all technologies in a fashion that ensures that 
this idea of technological neutrality we had 7 years ago is preserved, 
and to do it as we have sought to do so that the dire revenue 
projections we will hear this week about States losing vast amounts of 
money will not come true as they have not come true over the last 7 
years.
  I yield the floor, and I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. LEAHY. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. LEAHY. Mr. President, what is the parliamentary situation? Are we 
still in morning business?
  The PRESIDING OFFICER. The Senate is in morning business.
  Mr. LEAHY. I thank the Chair.

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