[Congressional Record Volume 150, Number 134 (Friday, November 19, 2004)]
[House]
[Pages H10025-H10029]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   INTERNET TAX NONDISCRIMINATION ACT

  Mr. SENSENBRENNER. Mr. Speaker, I move to suspend the rules and pass 
the Senate bill (S. 150) to make permanent the moratorium on taxes on 
Internet access and multiple and discriminatory taxes on electronic 
commerce imposed by the Internet Tax Freedom Act.
  The Clerk read as follows:

                                 S. 150

       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 
     Nondiscrimination Act''.

     SEC. 2. FOUR-YEAR EXTENSION OF INTERNET TAX MORATORIUM.

       (a) In General.--Subsection (a) of section 1101 of the 
     Internet Tax Freedom Act (47 U.S.C. 151 note) is amended to 
     read as follows:
       ``(a) Moratorium.--No State or political subdivision 
     thereof may impose any of the following taxes during the 
     period beginning November 1, 2003, and ending November 1, 
     2007:
       ``(1) Taxes on Internet access.
       ``(2) Multiple or discriminatory taxes on electronic 
     commerce.''.
       (b) Conforming Amendments.--(1) Section 1101 of the 
     Internet Tax Freedom Act (47 U.S.C. 151 note) is amended by 
     striking subsection (d) and redesignating subsections (e) and 
     (f) as subsections (d) and (e), respectively.
       (2) Section 1104(10) of the Internet Tax Freedom Act (47 
     U.S.C. 151 note) is amended to read as follows:
       ``(10) Tax on internet access.--
       ``(A) In general.--The term `tax on Internet access' means 
     a tax on Internet access, regardless of whether such tax is 
     imposed on a provider of Internet access or a buyer of 
     Internet access and regardless of the terminology used to 
     describe the tax.
       ``(B) General exception.--The term `tax on Internet access' 
     does not include a tax levied upon or measured by net income, 
     capital stock, net worth, or property value.''.
       (3) Section 1104(2)(B)(i) of the Internet Tax Freedom Act 
     (47 U.S.C. 151 note) is amended by striking ``except with 
     respect to a tax (on Internet access) that was generally 
     imposed and actually enforced prior to October 1, 1998,''.
       (c) Internet Access Service; Internet Access.--
       (1) Internet access service.--Paragraph (3)(D) of section 
     1101(d) (as redesignated by subsection (b)(1) of this 
     section) of the Internet Tax Freedom Act (47 U.S.C. 151 note) 
     is amended by striking the second sentence and inserting 
     ``The term `Internet access service' does not include 
     telecommunications services, except to the extent such 
     services are purchased, used, or sold by a provider of 
     Internet access to provide Internet access.''.
       (2) Internet access.--Section 1104(5) of that Act is 
     amended by striking the second sentence and inserting ``The 
     term `Internet access' does not include telecommunications 
     services, except to the extent such services are purchased, 
     used, or sold by a provider of Internet access to provide 
     Internet access.''.

     SEC. 3. GRANDFATHERING OF STATES THAT TAX INTERNET ACCESS.

       The Internet Tax Freedom Act (47 U.S.C. 151 note) is 
     amended--
       (1) by redesignating section 1104 as section 1105; and
       (2) by inserting after section 1103 the following:

     ``SEC. 1104. GRANDFATHERING OF STATES THAT TAX INTERNET 
                   ACCESS.

       ``(a) Pre-October 1998 Taxes.--
       ``(1) In general.--Section 1101(a) does not apply to a tax 
     on Internet access that was generally imposed and actually 
     enforced prior to October 1, 1998, if, before that date, the 
     tax was authorized by statute and either--
       ``(A) 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
       ``(B) a State or political subdivision thereof generally 
     collected such tax on charges for Internet access.
       ``(2) Termination.--This subsection shall not apply after 
     November 1, 2007.
       ``(b) Pre-November 2003 Taxes.--
       ``(1) In general.--Section 1101(a) does not apply to a tax 
     on Internet access that was generally imposed and actually 
     enforced as of November 1, 2003, if, as of that date, the tax 
     was authorized by statute and--
       ``(A) a provider of Internet access services had a 
     reasonable opportunity to know by virtue of a public 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; and
       ``(B) a State or political subdivision thereof generally 
     collected such tax on charges for Internet access.
       ``(2) Termination.--This subsection shall not apply after 
     November 1, 2005.''.

     SEC. 4. ACCOUNTING RULE.

       The Internet Tax Freedom Act (47 U.S.C. 151 note) is 
     amended by adding at the end the following:

     ``SEC. 1106. ACCOUNTING RULE.

       ``(a) In General.--If charges for Internet access are 
     aggregated with and not separately stated from charges for 
     telecommunications services or other charges that are subject 
     to taxation, then the charges for Internet access may be 
     subject to taxation unless the Internet access provider can 
     reasonably identify the charges for Internet access from its 
     books and records kept in the regular course of business.
       ``(b) Definitions.--In this section:
       ``(1) Charges for internet access.--The term `charges for 
     Internet access' means all charges for Internet access as 
     defined in section 1105(5).
       ``(2) Charges for telecommunications services.--The term 
     `charges for telecommunications services' means all charges 
     for telecommunications services, except to the extent such 
     services are purchased, used, or sold by a provider of 
     Internet access to provide Internet access.''.

     SEC. 5. EFFECT ON OTHER LAWS.

       The Internet Tax Freedom Act (47 U.S.C. 151 note), as 
     amended by section 4, is amended by adding at the end the 
     following:

     ``SEC. 1107. EFFECT ON OTHER LAWS.

       ``(a) Universal Service.--Nothing in this Act shall prevent 
     the imposition or collection of any fees or charges used to 
     preserve and advance Federal universal service or similar 
     State programs--
       ``(1) authorized by section 254 of the Communications Act 
     of 1934 (47 U.S.C. 254); or
       ``(2) in effect on February 8, 1996.
       ``(b) 911 and E-911 Services.--Nothing in this Act shall 
     prevent the imposition or collection, on a service used for 
     access to 911 or E-911 services, of any fee or charge 
     specifically designated or presented as dedicated by a State 
     or political subdivision thereof for the support of 911 or E-
     911 services if no portion of the revenue derived from such 
     fee or charge is obligated or expended for any purpose other 
     than support of 911 or E-911 services.

[[Page H10026]]

       ``(c) Non-tax Regulatory Proceedings.--Nothing in this Act 
     shall be construed to affect any Federal or State regulatory 
     proceeding that is not related to taxation.''.

     SEC. 6. EXCEPTION FOR VOICE AND OTHER SERVICES OVER THE 
                   INTERNET.

       The Internet Tax Freedom Act (47 U.S.C. 151 note), as 
     amended by section 5, is amended by adding at the end the 
     following:

     ``SEC. 1108. EXCEPTION FOR VOICE SERVICES OVER THE INTERNET.

       ``Nothing in this Act shall be construed to affect the 
     imposition of tax on a charge for voice or similar service 
     utilizing Internet Protocol or any successor protocol. This 
     section shall not apply to any services that are incidental 
     to Internet access, such as voice-capable e-mail or instant 
     messaging.''.

     SEC. 7. GAO STUDY OF EFFECTS OF INTERNET TAX MORATORIUM ON 
                   STATE AND LOCAL GOVERNMENTS AND ON BROADBAND 
                   DEPLOYMENT.

       The Comptroller General shall conduct a study of the impact 
     of the Internet tax moratorium, including its effects on the 
     revenues of State and local governments and on the deployment 
     and adoption of broadband technologies for Internet access 
     throughout the United States, including the impact of the 
     Internet Tax Freedom Act (47 U.S.C. 151 note) on build-out of 
     broadband technology resources in rural under served areas of 
     the country. The study shall compare deployment and adoption 
     rates in States that tax broadband Internet access service 
     with States that do not tax such service, and take into 
     account other factors to determine whether the Internet Tax 
     Freedom Act has had an impact on the deployment or adoption 
     of broadband Internet access services. The Comptroller 
     General shall report the findings, conclusions, and any 
     recommendations from the study to the Senate Committee on 
     Commerce, Science, and Transportation and the House of 
     Representatives Committee on Energy and Commerce no later 
     than November 1, 2005.

     SEC. 8. EFFECTIVE DATE.

       The amendments made by this Act take effect on November 1, 
     2003.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Wisconsin (Mr. Sensenbrenner) and the gentleman from North Carolina 
(Mr. Watt) each will control 20 minutes.
  The Chair recognizes the gentleman from Wisconsin (Mr. 
Sensenbrenner).


                             General Leave

  Mr. SENSENBRENNER. Mr. Speaker, I ask unanimous consent that all 
Members may have 5 legislative days within which to revise and extend 
their remarks and include extraneous material on S. 150, the Senate 
bill currently under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Wisconsin?
  There was no objection.
  Mr. SENSENBRENNER. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, I rise today in support of S. 150, the Internet Tax 
Nondiscrimination Act.
  In 1998, Congress passed the Internet Tax Freedom Act to protect the 
Internet from crippling taxation and piecemeal regulation. The act 
prohibited States from imposing multiple and discriminatory taxes on 
electronic commerce and shielded consumers from new Internet access 
taxes. However, some States that had already begun taxing on Internet 
access by 1998 were allowed to continue such taxation temporarily.
  During the 107th Congress, we extended the moratorium until November 
1, 2003. On July 24, 2003, well before the November expiration 
deadline, the House Committee on the Judiciary reported H.R. 49, the 
Internet Tax Nondiscrimination Act. Introduced by the gentleman from 
California (Mr. Cox), H.R. 49 made permanent the ban on taxes that 
targeted the Internet for discriminatory treatment and immediately 
ended all taxes on Internet access by all States and localities.
  Unlike the Senate bill, H.R. 49 also eliminated the so-called 
grandfather clause for States that taxed Internet access prior to 
October 1, 1998; and through a bipartisan amendment offered in 
subcommittee by the gentleman from Utah (Mr. Cannon) and the gentleman 
from North Carolina (Mr. Watt), the House bill preserved the original 
intent of the law by not punishing broadband users, then providing tax 
freedom for all forms of Internet access, whether by dial-up, cable, or 
DSL line. H.R. 49 passed the House by voice vote on September 17, 2003. 
Unfortunately, the other body was unable to pass legislation extending 
the moratorium until April 29, 2004, 6 months after the moratorium 
expires.
  The Senate bill differs from H.R. 49 in several ways. First, rather 
than a permanent moratorium, it creates a temporary 4-year moratorium 
on Internet access taxes running retroactively from November 1, 2003, 
until November 1, 2007. Secondly, it extends the 1998 grandfather 
clause for the life of the moratorium so that all those States 
currently taxing Internet access will continue to do so with the one 
notable exception of Wisconsin, which I already addressed fully when we 
considered the related enrolling resolution.

                              {time}  1215

  Third, it creates a new, 2-year grandfather clause for States that 
tax Internet access after the expiration of the moratorium.
  Despite these weaknesses which I believe to be substantial, passing 
the Senate bill extending the Internet tax moratorium is still a big 
win for the vast majority of American Internet users. Without any 
action by this Congress, Internet commerce would still be subject to 
State and local taxes in thousands of jurisdictions. The digital 
economy and its participants are more vulnerable if we do not act, even 
if we must act on a weaker bill.
  For those reasons I support passage of S. 150, which will extend the 
benefits of the moratorium until 2007.
  At this time, let me put everyone on notice that in the next 
Congress, even though the moratorium does not expire during the life of 
the 109th Congress, I will attempt, once again, to make this moratorium 
permanent so that no State, when it puts together its budget in January 
of 2007, will fall into the trap of counting Internet access taxes as 
revenue.
  The bill, together with the enrolling resolution just passed, will at 
least temporarily protect against those States and localities taxing 
our e-mail and taxing Web service. The extension of the moratorium will 
help vitalize the Internet economy, provide tax relief to consumers no 
matter how they get their Internet access, and will stimulate equal 
access to this increasingly important medium. I will continue to assess 
future avenues that will promote greater Internet access at higher 
speeds and at less cost for all Americans. Let everybody be on notice 
that that is going to happen sooner rather than later.
  For now, I urge my colleagues to join me in supporting S. 150 and 
making the Internet a less taxing and more productive experience.
  Mr. Speaker, I reserve the balance of my time.
  Mr. WATT. Mr. Speaker, I yield myself such time as I may consume, 
which will be a very short amount of time, just to make two points.
  Number one, the chairman of my committee and I have served so long 
together that he did not even flinch when I was debating a bill that I 
thought was all part of one big parcel, because he has seen me many 
times debate something that we were not discussing in committee, so it 
did not come as any surprise to him at all. He did not even flinch.
  So I think on that what I will do is roll the statement that I read 
on S. 150 into this debate. That was the discussion on the last bill. I 
thought we were doing this, all this part and parcel of one big bill 
here, rather than in two stages. So I hope I can just roll that last 
statement on to this debate and save myself from having to read it 
again.
  Second, I would just say to the gentleman on his ``do not surprise us 
in the next Congress'' that I think there has been a long-term 
agreement and commitment to making the Internet exempt from taxation a 
permanent moratorium. The thing that has held that up is that, at the 
same time, States and local governments have wanted to work out a 
national uniform system for taxing remote sales that take place over 
the Internet so that they do not lose substantial revenues from that 
source. So I think if we could come up with a system to put into place 
some uniform standards for taxation of remote sales over the Internet, 
making the moratorium on Internet access would be a no-brainer and a 
very noncontroversial step.
  So I would hope that I would be able to join the chairman of the full 
committee in supporting a permanent moratorium on Internet access 
taxes, but I would be able to do that only if we can work out this 
other deal having to do

[[Page H10027]]

with putting in place a taxation system for taxation of remote sales 
that are taking place over the Internet.
  Because what is happening now is that brick and mortar retailers in 
all of our communities are collecting sales taxes on sales that are 
taking place in those brick and mortar stores and, at the same time, 
people are able to buy over the Internet the same product and be exempt 
from paying taxes on it because there is no uniform way for collecting 
those taxes at remote locations. That is costing local governments and 
State governments in some cases enormous amounts of tax revenues, 
because most of them are supported by sales taxes or local property 
taxes, and this is eroding a primary base of tax income for local 
communities and State communities.
  So if we can get that part of this equation worked out, I think the 
chairman would see a virtual landslide of support for making the 
moratorium on Internet access a permanent moratorium, and I would be 
right in the lead of the march with my chairman, and I hope he will 
join us in trying to make that happen in the next term of Congress.
  Mr. WATT. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise in support of S. 150, the Internet Tax 
Nondiscrimination Act, and urge my colleagues to support its passage. 
It has been a long journey to get here, but I believe that the 
compromise forged in the Senate preserves the goals we sought here in 
the House both at the subcommittee and full committee levels.
  Specifically, S. 150 extends the existing moratorium against taxes on 
Internet access by all State and local governments, including those 
that were previously grandfathered by the Internet Tax Freedom Act, and 
there is a new grandfather for States that imposed taxes on access to 
the Internet until November 1, 2005. Although this bill will 
necessarily result in the potential loss of some revenue to some 
States, it will promote the continued development, emergence, and 
widespread access to the Internet; and it will do so in a fair and 
technologically neutral manner.
  During the proceedings on this bill in the House, I, together with 
the gentleman from Utah (Mr. Cannon), the chairman of the Subcommittee 
on Commercial and Administrative Law, on which I am the ranking member, 
offered an amendment to help clarify the meaning of Internet access and 
to put an end to the current confusion that has led to discriminatory 
and inconsistent State taxation on Internet access. The bill before us 
today represents a compromise on that amendment which is supported by 
the relevant stakeholders, including the industry and the State and 
local government representatives.
  The principle I pursued in offering the amendment was simple: If we 
are to prohibit taxes on Internet access, we must do so regardless of 
how that access is provided. Otherwise, we would give a competitive 
advantage to those providers covered by the moratorium over those 
providers that remain subject to taxation. This would limit the choices 
of consumers and raise the cost of alternative means of accessing the 
Internet such as DSL. By making the moratorium applicable to all 
Internet service providers, we have created a level playing field for 
the consumer. In the process, we have had no intention to otherwise 
undermine State and local telecommunications tax bases.
  With this issue now behind us if we pass this bill, this Congress 
must turn to the issue of State sales and use taxes. I, along with the 
gentleman from Massachusetts (Mr. Delahunt) and other colleagues on our 
subcommittee, have insisted throughout our deliberations to ban 
Internet access taxes that we remain mindful of the fiscal crisis 
currently confronting many of our States. Toward that end, the States' 
attempt to establish a unified tax system that would enable them to 
impose and collect sales taxes on transactions over the Internet in a 
manner that is fair and manageable has progressed; and I believe that 
during the next term of Congress we will be able to work toward a 
sensible solution to solve the remote sales tax issue when remote sales 
are taking place over the Internet.
  In closing, I believe that S. 150 will ensure that the ban on 
Internet access taxes is neutral as to technology, speed, and provider. 
I urge my colleagues to vote in favor of this bill.
  I thank the gentleman for his hard work on this and certainly thank 
the gentleman from Utah (Mr. Cannon), my subcommittee Chair, in his 
absence, for the tremendous amount of work he has put into this issue.
  Mr. Speaker, I have no further requests for time either on S. Con. 
Res. 146, which I thought I was debating the last time, or on S. 150, 
which I understand we are debating now, so I will be happy, unless the 
chairman wants to promise me he is going to work with me on this remote 
sales tax issue and wants to have a dialogue about that, I am happy to 
yield back the balance of my time, or yield to the chairman if he wants 
to comment on it.
  Mr. Speaker, I yield back the balance of my time.
  Mr. SENSENBRENNER. Mr. Speaker, I yield myself 15 seconds to say that 
access taxes and remote sales tax collections are two separate issues. 
It is like apples and oranges, and when you mix apple juice and orange 
juice in the same concoction, frequently it is not very tasty. But we 
will deal with both of those issues and consider them in the next 
Congress.
  Mr. Speaker, I yield such time as he may consume to the gentleman 
from California (Mr. Cox), the author of H.R. 49.
  Mr. COX. Mr. Speaker, I thank the gentleman from Wisconsin (Chairman 
Sensenbrenner) and thanks also to the gentleman from Michigan (Ranking 
Member Conyers) for the Committee on the Judiciary's staunch leadership 
on this issue. Special thanks also to the chairman of the Subcommittee 
on Commercial and Administrative Law of the Committee on the Judiciary, 
the gentleman from Utah (Mr. Cannon), and, of course, to the Ranking 
Member, the gentleman from North Carolina (Mr. Watt), the author of a 
critical amendment to this bill which makes it explicit that the 
Internet tax moratorium provides consumers with tax freedom from all 
forms of Internet access, regardless of the technology, wired or 
wireless, broadband or dial-up, or any pathway yet to be invented.
  While I am proud to be the author of the Internet Tax Freedom Act, 
which created the Internet tax moratorium in 1998, and the Internet Tax 
Nondiscrimination Act, which passed this Congress unanimously last 
year, this is the work of a great bipartisan team led on the Senate 
side by George Allen of Virginia and my original moratorium coauthor, 
who was then a member of the House, Ron Wyden of Oregon, and by 
President Bush who urged this Congress to extend this most valuable of 
consumer protections from taxation.
  Republicans and Democrats have come together to say that, no matter 
how we might choose to fund government services, we all agree that the 
worst way to do it would be to create new taxes on the Internet. That 
would be harmful to consumers, destructive to technological innovation, 
and bad for our economy.
  The case for allowing Internet access to remain tax-free has never 
been stronger. With 200 million Americans now online, a new tax on 
access would be a tax on working families. Our citizens recognize the 
danger. Eighty-eight percent of Americans oppose new Internet access 
taxes. So one might say that this legislation, the Internet Tax Freedom 
Act and the Internet Nondiscrimination Act, this moratorium, are the 
most popular tax issues in America.
  New Internet taxes would also be highly destructive to the American 
economy. Studies from the Brookings Institution, the University of 
California, Harvard, Stanford, MIT, the Congressional Budget Office, 
the Department of Commerce, and the Federal Reserve all confirm the 
positive role of the Internet in making Americans more productive. New 
taxes can only slow this valuable and powerful engine of our economy 
and job growth, productivity and prosperity in America.
  Finally, Mr. Speaker, the United States of America needs to regain 
world leadership in encouraging other countries around the world to 
keep taxes off of the World Wide Web. The Internet is truly global 
commerce. The original Internet Tax Freedom Act instructed the 
executive branch to negotiate bilateral understandings with

[[Page H10028]]

other countries, and our executive branch has done so. During the 
period of time when this moratorium was expired, America could hardly 
lead when our own policy was not clear that we forbid taxation of the 
Internet. Now we are back where we belong in our role of world 
leadership, and the Bush administration can once again resume with 
confidence negotiations with other countries to make sure that when we 
go online it is not just other foreign states that will not be taxing 
you, your Internet activities will not be prey to predatory tax 
policies from other countries as well.
  Mr. Speaker, I urge all Members to vote yes on this excellent 
legislation, S. 150, and yes on the enrolling resolution. I thank the 
chairman for this great success for consumers.
  Mr. WATT. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I would just like to assure the gentleman from 
California (Mr. Cox) that he did not really say anything that I 
disagree with. Neither did the chairman say anything that I disagree 
with.
  I agree that taxation of Internet access and taxation of remote sales 
are like apples and oranges. But both of them have economic impact on 
State and local communities, and just because they are apples and 
oranges does not mean that they do not have an economic impact. So what 
has been keeping this from moving forward is that if you take away the 
Internet access issue and you do not resolve the remote sales issue, 
then local and State communities are being doubly impacted in some 
cases, and they would like us to resolve both of those issues. They do 
not necessarily want us to mix orange juice and apple juice together, 
but they do want us to be able to drink apple juice at one point and 
drink orange juice at the other point, and they are not mutually 
exclusive, and they have a similar impact in local communities.
  So I am in full agreement that we ought to make this moratorium 
permanent on Internet access. I am supporting both of these bills, and 
I do not think there is any controversy about that.
  My only point is we also need to now roll up our sleeves in this next 
term of Congress and resolve the remote sales tax issue so that we can 
put all of this to rest, and then we can drink both apple juice and 
orange juice and enjoy both of them in due course.
  Mr. Speaker, I have no other speakers, and I yield back the balance 
of my time.
  Mr. PICKERING. Mr. Speaker, I rise today for two reasons: First, to 
support S. 150, ``The Internet Tax Nondiscrimination Act,'' and, 
second, to clarify a mischaracterization of a provision of S. 150 that 
has appeared in the media and perhaps in the minds of some of my 
colleagues concerning the affect of S. 150 on Voice over Internet 
Protocol or VoIP.
  First, I support passage of S. 150 and commend my colleagues in both 
the House and the Senate for working vigorously to forge a compromise 
that addresses, albeit in a temporary fashion, the most important issue 
we face today concerning what's been termed the ``digital divide''--
bridging the gap between those who have Internet access and those who 
do not by protecting such access for all Americans from overburdensome 
taxation by a multiplicity of State and local governments that would 
directly and substantially inhibit the growth and expansion of this 
still relatively young technology. This bill extends until November 
2007 the current moratorium that prohibits States, or their political 
subdivisions, from taxing Internet access or imposing multiple or 
discriminatory taxes on electronic commerce. Both houses of Congress 
also compromised on the treatment of States who had been taxing 
Internet access even before 1998 when Congress passed the Internet Tax 
Freedom Act. The grandfathered status of those States to continue 
taxation of Internet access will be extended for 3 more years under S. 
150. While I support the compromise we are voting on today because it 
accomplishes our intent to prohibit State and local taxation of 
Internet access in the interim, I still firmly believe that we should 
permanently prohibit State taxation of Internet access in the future. 
However, I do look forward to working with our State, county, and city 
leaders in the future to address the broader issue of taxation of goods 
and services over the Internet. Everyone recognizes that the Internet 
knows no borders, domestically or globally, and we should treat it as 
such by permanently prohibiting an estimated 30,000 different 
jurisdictions nationwide from imposing taxes on Internet access and 
stifling this innovative technology that has become not only a useful 
informational, educational, and recreational technology for most 
Americans but also an economical necessity for our business community.
  Second, and more importantly for my purposes as the lead sponsor in 
the House of H.R. 4129, the ``VoIP Regulatory Freedom Act of 2004,'' S. 
150 as passed by the Senate contains a provision specifying that Voice-
over-Internet-Protocol (``VoIP'') services are not covered by the 
moratorium. That provision states:
       SEC. 1108. EXCEPTION FOR VOICE SERVICES OVER THE INTERNET.
       Nothing in this Act shall be construed to affect the 
     imposition of tax on a charge for voice or similar service 
     utilizing Internet Protocol or any successor protocol. This 
     section shall not apply to any services that are incidental 
     to Internet access, such as voice-capable e-mail or instant 
     messaging.

  While it has been misreported in the media and possibly misconstrued 
by others that this provision somehow specifically authorizes or 
requires the taxation of VoIP by States, nothing could be farther from 
the truth. This exception merely provides that the moratorium makes no 
inference as to the tax treatment of voice services provided over the 
Internet. Even Senator Patrick Leahy, Ranking Member of the Senate 
Judiciary Committee, has acknowledged the same when he stated during 
debate of S. 150 on the Senate floor on April 29, 2004, that ``the 
McCain amendment [S. 150] . . . does not affect the emerging technology 
of Voice over Internet Protocol, VoIP.'' This provision does not 
authorize State and local governments to impose a tax on customers or 
require the collection of the tax by vendors. Nor does it provide that 
state and local taxes currently apply to VoIP services. Whether these 
services meet the definition of taxable telecommunications or other 
services under state and local statutes is a question of law and will 
be determined at a future date by Congress.

  VoIP services as transactions in electronic commerce should not be 
burdened by the multiple and discriminatory taxes that States and 
localities currently apply to telecommunications services. The Federal 
Communications Commission (FCC) has recently ruled that VoIP is 
inextricably interstate by its very nature and therefore States are 
specifically prevented from regulating the type of VoIP provided by 
Vonage Holdings Corporation. However, the FCC specifically expressed no 
opinion on the applicability of State general laws governing entities 
conducting business within the State, such as laws concerning taxation, 
to VoIP providers. The FCC's decision, however, has ensured an 
environment in which VoIP can develop, prosper and grow to provide more 
choices for consumers and a more competitive communications industry. 
The FCC's decision also has ensured a greater degree of market 
certainty, will encourage investment, will create jobs and will prevent 
a misguided approach to regulating VoIP. The drafters of S. 150 had the 
same intent and goals in mind. In the House, 61 members joined me in 
sending a letter to the FCC on October 5, 2004, calling on the 
Commission to rule that VoIP is an interstate application and thus 
subject to FCC jurisdiction. The letter, signed by a bipartisan 
majority of the House Energy and Commerce Committee, urged a ruling 
that VoIP is interstate in nature and subject to the Commission's 
exclusive jurisdiction.
  I mention all this to make the point that, because S. 150 does not 
determine the taxable treatment of VoIP, the issue will be dealt with 
in the near future in Congress where I believe, based upon the facts 
and goals espoused above, that a majority of both houses will agree 
that taxation and regulation of VoIP, if any, should be left to the 
Federal Government. To avoid any confusion for the future, our approval 
of S. 150 today does not in any way imply any support for taxation of 
VoIP by the States or the Federal Government. The provision was merely 
inserted to clarify that the moratorium does not make a decision 
concerning the taxability of VoIP.
  Again, thanks to all those involved in this great legislative 
accomplishment and I look forward to working with my colleagues here in 
Congress to address the issues of VoIP and taxation in the near future.
  Mr. SMITH of Texas. Mr. Speaker, I support S. 150, the Internet Tax 
and Nondiscrimination Act.
  This legislation would reinstate the moratorium on Internet access 
taxation and multiple or discriminatory taxes on electronic commerce 
for three years.
  Internet commerce is still relatively new and has yet to reach its 
full potential. The imposition of taxes would threaten the future 
growth of e-commerce and would discourage companies from using the 
Internet to conduct business. Internet taxation would create regional 
and international barriers to global trade.
  The Internet is also a major source of information and resources for 
many individuals and families. Taxes could make Internet access 
unaffordable for some Americans. Our goal should be to encourage and 
promote Internet access.

[[Page H10029]]

  Americans should be able to access the Internet without being subject 
to state and local taxes.

                              {time}  1230

  Mr. SENSENBRENNER. Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Shimkus). The question is on the motion 
offered by the gentleman from Wisconsin (Mr. Sensenbrenner) that the 
House suspend the rules and pass the Senate bill, S. 150.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the Senate bill was passed.
  A motion to reconsider was laid on the table.

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