[Congressional Record Volume 150, Number 140 (Monday, December 20, 2004)]
[Extensions of Remarks]
[Pages E2211-E2212]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     DIRECTING SECRETARY OF SENATE TO CORRECT ENROLLMENT OF S. 150

                                 ______
                                 

                               speech of

                    HON. F. JAMES SENSENBRENNER, JR.

                              of wisconsin

                    in the house of representatives

                       Friday, November 19, 2004

  Mr. SENSENBRENNER. Mr. Speaker, on November 19, 2004, the House 
passed both S. Con. Res. 146 and S. 150 under suspension of the rules 
by voice vote. The amendments made to S. 150 as it was passed by the 
Senate included a provision that ended some state taxation of Internet 
access previously interpreted to be allowed by the original 1998 
moratorium grandfather exceptions. The final

[[Page E2212]]

enrolled version of S. 150 was signed by President Bush on December 3, 
2004, and became Public Law 108-435.
  As Chairman of the Committee of jurisdiction in the House, I wish to 
remark further upon the meaning and intent of Section 1104(a)(2) of the 
final enrolled version of S. 150 that became Public Law. The intent of 
this section is to clarify ambiguities associated with the Internet Tax 
Freedom Act (Pub. L. 106-277, Div. C. Title XI (1998)) (``ITFA''), 
which created a moratorium on State taxation of Internet access and on 
multiple and discriminatory taxation of electronic commerce. The ITFA 
contained an exemption for States that had generally imposed or 
actually enforced a tax on Internet access prior to October 1, 1998. 
Thus, States that qualified for ``grandfather'' status could continue 
to tax Internet access.
  Subsequent to 1998, however, litigation arose between State taxing 
authorities and various Internet Service Providers (ISPs), who 
maintained that certain States wrongly taxed them and their customers 
for Internet access even though such States had never qualified for 
grandfather status. One example is that of Tennessee, whose 
Commissioner of Revenue had assessed sales and use taxes on Internet 
access based on the State's tax on ``telecommunications services.'' An 
ISP (Prodigy) challenged the tax and, following several years of 
litigation, the Tennessee Court of Appeals eventually ruled that the 
provision of Internet access did not constitute a taxable event within 
the Tennessee statute. Thus, Tennessee had never met the requirements 
for grandfather status under the ITFA to tax Internet access.
  Similarly, Wisconsin taxation authorities claimed to qualify for 
grandfather status under the ITFA based on a broad State tax on 
``telecommunications services'' which was subsequently applied to 
encompass Internet access through an administrative ruling. Like 
Tennessee, ISPs have challenged Wisconsin's status as a 
``grandfathered'' State under the pre-October 1998 provisions of the 
ITFA. The crux of the ISPs' argument is that the tax statutes of 
Tennessee and Wisconsin differ from those of other grandfathered States 
that meet the conditions of the ITFA. Where other grandfathered States' 
statutes impose taxes on all services unless an exemption exists, those 
of States like Wisconsin and Tennessee only tax services if they are 
enumerated in the statute specifically. Since neither State's statute 
taxed Internet access explicitly, they were never entitled to assess 
taxes on Internet access within their States as the ITFA was intended 
to be construed by Congress.
  In order to provide clarity about the original intent of Congress and 
the ITFA, and in order to end further litigation, Section 1104(a)(2) 
states that the grandfather provision of the ITFA will terminate after 
November 1, 2007 with the exception of a State telecommunications 
service tax enacted by State law on or after October 1, 1991 and 
applied to Internet access through administrative code or regulation 
issued on or after December 1, 2002.
  Section 1104(a)(2) should also serve notice that Congress finds 
particularly egregious the attempts of some States, like Wisconsin, to 
avoid the Congressional intent and the general moratorium by seeking to 
impose preexisting telecommunications taxes on Internet access after 
the enactment of the ITFA through administrative ruling rather than an 
act of the legislature. It is also the intent of this section to deter 
any similar efforts by States in the future.
  As of November 19, 2004, Congress believes that only Wisconsin of the 
remaining grandfathered states under the 1998 ITFA meets the particular 
general qualifying criteria set forth in Section 1104(a)(2)(B)(i) & 
(ii). Therefore the effect of Section 1104(a)(2) will be to end 
Wisconsin's grandfathered ability to collect taxes on Internet access 
by November 1, 2006. However, if any other grandfathered States are 
subsequently found to meet the same generally applicable criteria, they 
should be treated similarly and their grandfathered taxation status 
should also end by November 1, 2006.