[Congressional Record Volume 153, Number 156 (Tuesday, October 16, 2007)]
[House]
[Pages H11567-H11573]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INTERNET TAX FREEDOM ACT AMENDMENTS ACT OF 2007
Mr. WATT. Mr. Speaker, I move to suspend the rules and pass the bill
(H.R. 3678) to amend the Internet Tax Freedom Act to extend the
moratorium on certain taxes relating to the Internet and to electronic
commerce, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 3678
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 Freedom Act
Amendments Act of 2007''.
SEC. 2. MORATORIUM.
The Internet Tax Freedom Act (47 U.S.C. 151 note) is
amended--
(1) in section 1101(a) by striking ``2007'' and inserting
``2011'', and
(2) in section 1104(a)(2)(A) by striking ``2007'' and
inserting ``2011''.
SEC. 3. GRANDFATHERING OF STATES THAT TAX INTERNET ACCESS.
Section 1104 of the Internet Tax Freedom Act (47 U.S.C. 151
note) is amended by adding at the end the following:
``(c) Application of Definition.--
``(1) In general.--Effective as of November 1, 2003--
``(A) for purposes of subsection (a), the term `Internet
access' shall have the meaning given such term by section
1104(5) of this Act, as enacted on October 21, 1998; and
``(B) for purposes of subsection (b), the term `Internet
access' shall have the meaning given such term by section
1104(5) of this Act as enacted on October 21, 1998, and
amended by section 2(c) of the Internet Tax Nondiscrimination
Act (Public Law 108-435).
``(2) Exceptions.--Paragraph (1) shall not apply until
November 1, 2007, to a tax on Internet access that is--
``(A) generally imposed and actually enforced on
telecommunications service purchased, used, or sold by a
provider of Internet access, but only if the appropriate
administrative agency of a State or political subdivision
thereof issued a public ruling prior to July 1, 2007, that
applied such tax to such service in a manner that is
inconsistent with paragraph (1); or
``(B) the subject of litigation instituted in a judicial
court of competent jurisdiction prior to July 1, 2007, in
which a State or political subdivision is seeking to enforce,
in a manner that is inconsistent with paragraph (1), such tax
on telecommunications service purchased, used, or sold by a
provider of Internet access.
``(3) No inference.--No inference of legislative
construction shall be drawn from this subsection or the
amendments to section 1105(5)
[[Page H11568]]
made by the Internet Tax Freedom Act Amendments Act of 2007
for any period prior to November 1, 2007, with respect to any
tax subject to the exceptions described in subparagraphs (A)
and (B) of paragraph (2).''.
SEC. 4. DEFINITIONS.
Section 1105 of the Internet Tax Freedom Act (47 U.S.C. 151
note) is amended--
(1) in paragraph (1) by striking ``services'',
(2) by amending paragraph (5) to read as follows:
``(5) Internet access.--The term `Internet access'--
``(A) means a service that enables users to connect to the
Internet to access content, information, or other services
offered over the Internet;
``(B) includes the purchase, use or sale of
telecommunications by a provider of a service described in
subparagraph (A) to the extent such telecommunications are
purchased, used or sold--
``(i) to provide such service; or
``(ii) to otherwise enable users to access content,
information or other services offered over the Internet;
``(C) includes services that are incidental to the
provision of the service described in subparagraph (A) when
furnished to users as part of such service, such as a home
page, electronic mail and instant messaging (including voice-
and video-capable electronic mail and instant messaging),
video clips, and personal electronic storage capacity; and
``(D) does not include voice, audio or video programming,
or other products and services (except services described in
subparagraph (A), (B), or (C)) that utilize Internet protocol
or any successor protocol and for which there is a charge,
regardless of whether such charge is separately stated or
aggregated with the charge for services described in
subparagraph (A), (B), or (C).'',
(3) by amending paragraph (9) to read as follows:
``(9) Telecommunications.--The term `telecommunications'
means `telecommunications' as such term is defined in section
3(43) of the Communications Act of 1934 (47 U.S.C. 153(43))
and `telecommunications service' as such term is defined in
section 3(46) of such Act (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)).'', and
(4) in paragraph (10) by adding at the end the following:
``(C) Specific exception.--
``(i) Specified taxes.--Effective November 1, 2007, the
term `tax on Internet access' also does not include a State
tax expressly levied on commercial activity, modified gross
receipts, taxable margin, or gross income of the business, by
a State law specifically using one of the foregoing terms,
that--
``(I) was enacted after June 20, 2005, and before November
1, 2007 (or, in the case of a State business and occupation
tax, was enacted after January 1, 1932, and before January 1,
1936);
``(II) replaced, in whole or in part, a modified value-
added tax or a tax levied upon or measured by net income,
capital stock, or net worth (or, is a State business and
occupation tax that was enacted after January 1, 1932 and
before January 1, 1936);
``(III) is imposed on a broad range of business activity;
and
``(IV) is not discriminatory in its application to
providers of communication services, Internet access, or
telecommunications.
``(ii) Modifications.--Nothing in this subparagraph shall
be construed as a limitation on a State's ability to make
modifications to a tax covered by clause (i) of this
subparagraph after November 1, 2007, as long as the
modifications do not substantially narrow the range of
business activities on which the tax is imposed or otherwise
disqualify the tax under clause (i).
``(iii) No inference.--No inference of legislative
construction shall be drawn from this subparagraph regarding
the application of subparagraph (A) or (B) to any tax
described in clause (i) for periods prior to November 1,
2007.''.
SEC. 5. CONFORMING AMENDMENTS.
(a) Accounting Rule.--Section 1106 of the Internet Tax
Freedom Act (47 U.S.C. 151 note) is amended--
(1) by striking ``telecommunications services'' each place
it appears and inserting ``telecommunications'', and
(2) in subsection (b)(2)--
(A) in the heading by striking ``services'',
(B) by striking ``such services'' and inserting ``such
telecommunications'', and
(C) by inserting before the period at the end the
following: ``or to otherwise enable users to access content,
information or other services offered over the Internet''.
(b) Voice Services.--The Internet Tax Freedom Act (47
U.S.C. 151 note) is amended by striking section 1108.
SEC. 6. EFFECTIVE DATE.
This Act, and the amendments made by this Act, shall take
effect on November 1, 2007, and shall apply with respect to
taxes in effect as of such date or thereafter enacted, except
as provided in section 1104 of the Internet Tax Freedom Act
(47 U.S.C. 151 note).
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
North Carolina (Mr. Watt) and the gentleman from Texas (Mr. Smith) each
will control 20 minutes.
The Chair recognizes the gentleman from North Carolina.
General Leave
Mr. WATT. Mr. Speaker, I ask unanimous consent that all Members have
5 legislative days to revise and extend their remarks and include
extraneous material on the bill under consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from North Carolina?
There was no objection.
Mr. WATT. Mr. Speaker, I yield myself such time as I may consume.
H.R. 3678 is an excellent example of what can occur when we work
together on both sides of the aisle to deal with highly complex issues,
and I am evidently not alone in this observation.
This bipartisan legislation is supported by industry groups such as
the Don't Tax Our Web Coalition, government organizations such as the
National Governors Association, the Federal Tax Administration, the
National Conference of Mayors and the National Conference of State
Legislatures, and supported by a wide range of labor and union groups.
In sum, H.R. 3678 temporarily bans State and local taxes on Internet
access, while minimizing the effect on State and local government
ability to raise needed revenue and treat businesses fairly. The bill
is pro-consumer, pro-innovation and pro-technology. It amends the
Internet Tax Freedom Act in four key respects.
First, it extends the moratorium on State and local taxes on Internet
access for 4 years until November 1, 2011. The 4-year time frame will
allow Congress to make any adjustments to the moratorium, if necessary,
in light of development in the States or in technology, as Congress has
done each time it has extended the original moratorium in 2001, in
2004, and in this bill. It will also allow sufficient time for business
planning, while ensuring that everyone continues to have the benefit of
access to the Internet tax free.
Second, the bill extends for 4 years the grandfather provisions to
preserve the legality of taxes imposed prior to the 1998 act,
consistent with passed extensions. The bill also phases out new
grandfathers that some States claim were created in the 2004 extension,
while allowing States that issued public rulings before July 1, 2007,
that are inconsistent with the foregoing rules to be held harmless
until November 1, 2007.
Third, the bill clarifies the treatment of gross receipts taxes which
certain States have enacted in recent years in lieu of or as a
supplement to general corporate income taxes. Like the general
corporate income tax, these gross receipt taxes apply to nearly all
large businesses, not just to Internet access providers. The bill
clarifies that this form of general business tax is treated in the same
fashion as a corporate income tax and is not covered by the moratorium
as long as it is broadly imposed on businesses and is not
discriminatory in its application to providers of communication
services, Internet access, or telecommunications.
Finally, in response to a number of concerns regarding the definition
of Internet access in the current law, the bill clarifies the term to
mean a service that enables a user to connect to the Internet. This new
definition will not only prevent all tax-exempt content bundling but
will also include closely related Internet communication services, such
as e-mail and instant messaging. In addition, the bill amends the
definition of ``telecommunications'' to include unregulated, nonutility
telecommunications, such as cable service.
I want to particularly thank Judiciary Committee Chairman Conyers,
Ranking Member Smith, as well as Subcommittee Chairperson Sanchez and
Ranking Member Cannon for their cooperative efforts in helping us get
to this point in the process.
H.R. 3678 is a good, strong bill that provides much-needed clarity to
the communications and Internet industries, and strikes the right
balance in addressing the needs of States and local governments, while
helping keep Internet access affordable.
I urge my colleagues on both sides of the aisle to join me in
supporting this bill.
Mr. Speaker, I reserve the balance of my time.
Mr. SMITH of Texas. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I could use my time today to discuss the bill before us
because it does some good things, as the gentleman from North Carolina
has
[[Page H11569]]
pointed out. For example, it clarifies a definition of ``Internet
access'' to ensure that States do not tax Internet access, including
the acquisition of transmission capabilities. But instead, Mr. Speaker,
I'm going to talk more about what this bill does not do.
This bill does not permanently ban taxes on Internet access and e-
commerce. Only by making the ban on Internet access taxes permanent can
we give businesses the certainty they need to spend billions of dollars
to construct, maintain and update the broadband Internet infrastructure
throughout the country. And only by extending the moratorium
permanently can we continue to keep the cost of Internet access down so
that low-income individuals, those who are most sensitive to cost, can
continue to use the great informational tool that is called ``the
Internet.''
More than 240 Members have cosponsored bills H.R. 743 and H.R. 1077,
which provide for a permanent extension of the Internet Tax Freedom
Act. This support is broad and bipartisan. A permanent extension is
also consistent with the past actions of the House, which passed a
permanent ban in 2003.
Hundreds of companies and groups, including AOL, Apple, Americans for
Tax Reform, AT&T, Comcast, eBay, Electronics Industry Alliance, Level 3
Communications, the National Association of Manufacturers, the National
Cable and Telecommunications Association, the National Taxpayers Union,
Sprint/Nextel, Time Warner Communications, T-Mobile, U.S. Chamber of
Commerce, U.S. Telecom Association, U.S. Internet Industry Association,
Verizon, Yahoo, the Business Software Alliance, and the Hispanic
Technology & Telecommunications Partnership, among many, many others,
have called for a permanent ban on Internet access taxes; but this bill
contains no such provision.
At the markup of this bill at the Judiciary Committee, Mr. Goodlatte,
the gentleman from Virginia, offered an amendment to extend the
moratorium permanently. Even though 21 members of the committee, a
majority, cosponsored H.R. 743, the Permanent Internet Tax Freedom Act
of 2007, five of the six Democratic cosponsors reversed themselves and
voted against the permanent extension.
{time} 1215
Mr. Speaker, to paraphrase a one-time Presidential candidate, I guess
they must have been for permanence before they were against it.
After the Democrats defeated that amendment, Mr. Goodlatte offered
the next best thing, an 8-year extension of the moratorium. The 8-year
amendment subsequently failed on a more or less straight party-line
vote as did a similar amendment to extend the moratorium for 6 years.
If we are going to have a healthy economy in America, if we are going
to continue to create jobs, if we are going to continue to enjoy a high
standard of living, if we are going to continue to increase
productivity, we have to do everything we can to encourage and help the
high-tech industry.
To that end, I, along with Republican Leader Boehner, Republican Whip
Blunt, Mr. Goodlatte and Mr. Cannon, sent a letter to the majority
leader on Friday urging him to bring this bill to the floor under a
rule that allowed for a vote on permanence. By denying the 242 Members
who cosponsored a permanent ban on Internet taxes, Republicans and
Democrats alike, the opportunity to vote for permanence, the Democratic
leadership has shown that they oppose a permanent Internet tax
moratorium that would help high-tech companies and that they want to
leave the door open for taxing the Internet in the future.
I hope the American people and high-tech employers are watching
today.
Mr. Speaker, I reserve the balance of my time.
Mr. WATT. Mr. Speaker, I am pleased to yield such time as she may
consume to the gentlewoman from California (Ms. Zoe Lofgren) who is the
Chair of the Subcommittee on Immigration, Citizenship, Refugees, Border
Security, and International Law, but has been an invaluable participant
in the discussions that have led to this bill.
Ms. ZOE LOFGREN of California. Mr. Speaker, I rise in support of H.R.
3678.
Mr. Speaker, the Internet is one of the main drivers of the United
States economy. But we are quickly losing our edge over our global
competitors on the Internet. Over the past year, the United States
slipped from 12th to 17th in broadband adoption, and average broadband
speed in the United States is only 1.9 megabits per second. Now,
compare that to 61 megabits per second in Japan. France and Canada also
enjoy broadband speeds well beyond ours.
We made a commitment in the Innovation Agenda to reverse this trend
and bring affordable broadband access to all Americans. H.R. 3678
furthers that commitment in three very important ways: first and
foremost it prevents the moratorium from expiring on November 1.
Expiration would be a disaster, leading to hastily imposed taxes that
breed confusion and litigation. Even if we fix the problem later, the
damage will already have been done. Second, the bill codifies an
agreed-upon definition of Internet access that clarifies what services
are and are not taxable. Finally, the bill removes ambiguity that some
States have tried to exploit to tax the Internet backbone. Eliminating
that ambiguity is absolutely essential. We must remove obstacles to
investment in the basic infrastructure of the Internet.
As my colleagues and constituents know, I strongly favor a permanent
Internet tax moratorium. That is why I'm a cosponsor of my friend Anna
Eshoo's bill that would have made the moratorium permanent. That's why
I voted for the amendment offered by Mr. Goodlatte in committee to make
the moratorium permanent.
But we must take stock of a few basic facts. First, no permanent
moratorium will make it through the Senate. Second, the Senate has yet
to even vote a bill out of committee. And, third, it is October 16. The
moratorium expires in 2 weeks.
Given the state of affairs, I think it is crucial that we act now. We
need to send a clear message to our colleagues in the Senate that the
hour is late and the time for dithering is long since past. Therefore,
I urge my colleagues to join me in supporting this bill.
Mr. SMITH of Texas. Mr. Speaker, how much time remains on each side?
The SPEAKER pro tempore. The gentleman from Texas has 16 minutes. The
gentleman from North Carolina has 13 minutes.
Mr. SMITH of Texas. Mr. Speaker, I yield 10 minutes to the gentleman
from Virginia (Mr. Goodlatte) who is a senior member of the Judiciary
Committee, ranking member of the Agriculture Committee, chairman of the
high-tech working caucus and co-chairman of the Congressional Internet
Caucus, as well, in the House.
Mr. GOODLATTE. Mr. Speaker, I thank the gentleman from Texas for
yielding me this time and for his leadership on this overall issue and
on what could have been, had the Congress been allowed to work its
will. But, Mr. Speaker, it is a sad day when a majority of those, in
fact, I think almost everybody, who come down here to speak on this
issue are going to say, I also supported a permanent ban on access
taxes to the Internet, and that is why it is sad that we are not able
to bring this legislation forward under a rule under general order.
This is inappropriate to take the product of a committee when in the
process, a majority of the members of that committee had cosponsored
the alternative, a significant majority of the House had cosponsored
the alternative of a permanent ban on taxes on the Internet, that if
such a vote were brought here on the floor of the House I don't think
there is any doubt on the part of anybody here that it would pass
overwhelmingly.
In fact, that is exactly what has happened every other time this
legislation has been brought to the floor of the House. We have voted
for a permanent ban on access taxes on the Internet. That is the
appropriate thing to do if we want to see the Internet continue to grow
and to continue to reach out to more and more Americans, where instead
we find ourselves falling further and further behind more and more
other countries in terms of the numbers of Americans and the percentage
of Americans who have high-speed broadband access to the Internet.
One of the reasons for that is that there needs to be greater
investment in this technology to roll it out, to bring it to more
people's homes, to make it
[[Page H11570]]
more affordable. As long as the potential for taxes on the Internet
remains strong, as long as the potential for consumers to see on their
Internet access bills the same kind of charges that they see today on
their telephone bills and on their cable bills, where tax after tax
after tax adds up to, in some instances, 20 percent, 30 percent, 40
percent of the cost of getting access to some of these technologies,
obviously impacting lower income people. But, no, we weren't given the
opportunity to do that. We weren't given the opportunity to have, on
the floor of this House, what the vast majority of the Members of the
House have indicated they want to have.
Sure, the time is running out. This bill should have been brought up
months ago so that we would have adequate opportunity to work with the
Senate on this legislation. In fact, every indication is that the
Senate would agree to an extension greater than the 4 years provided in
this legislation. But, no, instead of leaving the House with the same
position we did the last time this came before the Congress in the
108th Congress when we passed a permanent extension, instead of having
a strong vote showing that kind of support, we are back-pedaling. We
are retrenching. We are coming forward with a much weaker position and
not going in the right direction if we truly intend to see the kind of
investment that needs to be made in making sure that families of all
income levels have access to the Internet.
The Internet Tax Fairness Act of 1998 created the moratorium on
Internet access taxes and discriminatory taxes on e-commerce. Seeing
that the growth of the Internet was an important thing, we have
maintained that moratorium on taxes, but also seeing at the same time
the percentage of American families who are able to access high-speed
Internet services, broadband services, declined, or not grow as fast as
a host of other countries in many parts of the world, is a very
discouraging thing.
That is why there has been a continued impetus for a permanent ban.
The ban has been temporarily extended, but it will expire in just 2
weeks. This legislation that is before the House today will pass and
will get that extension. But we will not be doing the things that we
need to be doing to make sure that the Internet remains permanently
free of access taxes and has that kind of encouragement to consumers
and to investors to know that those investments will not be curtailed
by a loss of interest in the growth of uptake of the Internet access by
those who would like to impose taxes on it.
State and local governments have shown a great appetite for doing
that. In fact, some had done it even before we put the original ban in
place, and they have been grandfathered in under the legislation that
moved forward. The proposal that we had would have phased out that
grandfathering after 4 years. In fact, after the permanent ban was
defeated in the committee, I offered an amendment that would have
extended it for 8 years, but only a 4-year extension of the grandfather
clauses, so that those States that were dependent upon these taxes
could phase them out over 4 years and we would then have a longer
period of time for which investors would see an opportunity to see
greater investment opportunities in the rollout of high-speed broadband
services to more Americans.
That actually passed in the committee the first time by a vote of 20-
18. Then without any explanation for why a member would change their
vote, nonetheless, a vote was changed and that was then defeated, and
we wound up with what we have on the floor with us today.
The Congress, the will of this House, is clear. Over 240 bipartisan
Members have cosponsored legislation to make the ban permanent. At
every turn, the Democratic majority has worked unusually hard to
suppress the clear will of the actual majority of Members of the House,
including nearly 100 Members on their side of the aisle who have
cosponsored legislation to make a permanent ban of Internet access
charges.
Despite the clear will of the House, and despite the requests that
the gentleman from Texas (Mr. Smith), our ranking member, referred to a
letter requesting that this be brought up under regular order, the
leadership of the House refused to bring a permanent extension to the
floor. No Members were allowed to offer amendments on the floor. Why?
Because clearly if anyone had been allowed to offer an amendment to
make the ban permanent, it would have passed by an overwhelming margin.
It would have supplanted the legislation that we are having here on the
floor today.
So no subcommittee markup was held on this legislation. The House
Judiciary Committee resorted to rare procedural maneuvers to reverse
the vote to double the length of the tax moratorium which I offered,
and party politics have trumped good policy in bringing this
legislation to the floor.
Our Nation's low-income families and the technology sector deserve
better, and they are big losers today. The permanent ban and the
rationale for it is important for people to understand. The temporary
fix before us does little to bridge the digital divide, the divide
between those who can easily afford high-speed Internet access service
and those who cannot. It is estimated that only 11 percent of U.S.
households with incomes less than $30,000 a year have high-speed
Internet service, as opposed to 61 percent of households with incomes
over $100,000. Why is that? Well, in part, it is because there has not
been sufficient buildout of Internet access in communities where there
are lower incomes, and in part it is because of the concern that once
this ban expires, this moratorium expires, significant taxes will be
imposed that will discourage lower-income families from maintaining
their service on the Internet or from acquiring it in the first place.
A permanent ban would guarantee that the price of Internet access
will not be raised due to excessive taxation, and a permanent ban would
create certainty for broadband providers and those who have to make the
multibillion dollar capital investment to make sure that the United
States not only catches up, but retakes its place as the world leader
in technology, not just in developing the technology, but making sure
that American businesses, large and small, and American families, rich
and poor, have access to this technology.
It is a shame that we are not having an opportunity to cast that vote
today, which is the clear will of the majority of this House.
Mr. WATT. I reserve the balance of my time.
Mr. SMITH of Texas. Mr. Speaker, I am happy to yield 2 minutes to the
gentleman from California (Mr. Campbell).
Mr. CAMPBELL of California. I thank the gentleman from Texas.
Mr. Speaker, 9 years ago, this House passed this ban on Internet
taxes. It has been in place for 9 years. During that time, we have seen
tremendous growth, economic growth, come from the Internet and also
tremendous opportunity for people to access information that before
they could not access over that 9 years.
During this time, e-mail, which once cost everyone something, now
costs most people nothing. Instant messages now exist which are
generally entirely free. There are all kinds of Web sites that allow
people to access information for free that prior to the evolution and
growth of the Internet they would have to pay to get that information.
Now you have a number of municipalities and organizations looking at
free WiFi, meaning that is even free access to the Internet.
In the face of all of this, all of these market pressures lowering
the cost of people accessing this information and adding to the
economic growth that comes from the Internet, the last thing that
government should be doing is imposing their cost on it, their cost
meaning ``taxes.''
Mr. Speaker, I stand today to support this legislation, although I
firmly believe, as the previous speakers have said, that this ban
should have been made permanent.
{time} 1230
I don't think we are going to learn anything in the next 4 years that
we didn't learn in the last 9 years, that the Internet is a tremendous
engine for economic growth and an opportunity for information transfer
available to people of all demographics all across the country. We do
not want to retard its growth. We do not want to slow its growth by
imposing taxes from government. We haven't done it in the next 9 years,
and this bill make sure we don't
[[Page H11571]]
do it for the next 4 years. I hope we don't ever do it.
Mr. WATT. Mr. Speaker, I reserve the balance of my time.
Mr. SMITH of Texas. Mr. Speaker, I yield 3 minutes to the gentlewoman
from California (Ms. Eshoo), who is the original sponsor of H.R. 743,
which would make the Internet tax moratorium permanent. We appreciate
her leadership in writing such a bill, and we appreciate her support.
Mr. WATT. Mr. Speaker, I yield the gentlewoman from California 2
minutes.
The SPEAKER pro tempore. The gentlewoman from California is
recognized for 5 minutes.
Ms. ESHOO. Mr. Speaker, I thank the ranking member of the House
Judiciary Committee and the gentleman from North Carolina for yielding
me time.
Mr. Speaker, I want to talk about and address what we accomplished at
the beginning of this year in the 110th Congress. At that time in
January, we came together on a bipartisan basis and a bicameral basis,
with Mr. Goodlatte as well as, I think, the Father of the Internet tax
moratorium effort, Senator Ron Wyden. What we did was to launch an
effort that would be bipartisan and that would capture the position
that the House of Representatives has always taken, and that is that
there would be a permanent moratorium on access taxes on the Internet.
Now, what do ``access taxes'' mean? The term is thrown around. I
really think that there are some that don't even understand what that
means. Just think of the following: Every time you walk into a public
library, how would you like to have to pay an access fee? Well, it's
the same thing that would apply to the Internet. Every time you click
on, you would be taxed.
Mr. Speaker, I think there are hundreds of reasons why we stand in
opposition to that. I think it's why when I was in the minority, I was
always an original lead on the legislation, and now, as the majority, I
am the lead on this bill. It is why we have attracted over 240
cosponsors to the legislation. It is not what the House Judiciary,
unfortunately, passed out.
I don't think it is good public policy. Why do I say that? I don't
say that simply because I feel like coming to the floor to say it. This
is about commerce in our country. We want to broaden broadband in our
country. I think that a permanent ban really speaks to that, a
permanent moratorium. I also think that it demonstrates our commitment
to the entire Internet community, that access to the Internet will
remain tax free.
We also want to ensure that e-commerce will remain free of
discriminatory taxes. Instead, the legislation is before us today on a
suspension and I can't offer an amendment, because if I was able to
offer an amendment, it would be permanent. We all know that. So I am
very disappointed with what the Judiciary Committee came out with. I
think that the best public policy is a permanent moratorium. I think it
would serve the best interest of the people of our country, not just
the Internet community, but all the people of our country. I also
understand that some unions have a problem with permanence. Of all
groups, they should be, in my view, protecting their workers who earn
less and not have to pay an access fee.
So I regret that the House position today has really been diminished,
because I don't think this is the fullness of what we can do. I think
we can do much better. I really don't know the reason for a 4-year
moratorium, why we have fallen back to that position. But I want to
make very clear that very few bills have attracted 240-plus bipartisan
cosponsors. I think that is the most eloquent statement about making
the moratorium permanent.
Mr. Speaker, I appreciate the time that the gentleman has yielded to
me, as well as Mr. Watts for seeking to give me more time. I hope that
in the not-too-distant future that ``permanent'' will be the full
position of the House of Representatives, the Congress of the United
States, and that we put this behind us so that the country can move
forward with a public policy that is going to serve everyone so much
better than what is at hand.
Mr. SMITH of Texas. Mr. Speaker, I thank the gentlewoman for her
comments, and I yield back the balance of my time.
Mr. WATT. Mr. Speaker, I yield myself such time as I may consume to
close the debate and to address some of the issues that have been
raised. I hope my colleagues will stay around, since they want to know
the rationale for the 4-year extension versus the permanent extension,
and listen to the rationale, because there is both ``practical
rationale'' and there is ``substantive rationale.''
Let me deal with the practical reasons first. This moratorium that
currently exists will expire the last day of this month if we do not
act. The Senate has not done anything yet, and in many ways has made it
clear that a permanent moratorium would be ``dead on arrival'' in the
Senate. If the Senate is not going to act on a permanent moratorium,
for the House to pass a permanent moratorium, send it to the Senate,
have the Senate reject that permanent moratorium, runs the risk that
time will run out before the month's end and the moratorium will run
out before the month's end.
Mr. Speaker, I have heard the argument that we ought to make this
permanent because this is stifling innovation. That strikes me as being
like the argument that we ought to not tax anything because people are
going to quit making money because there are taxes on the money that
they make. I don't know anybody who, over all these years of threats
that people have said to me people are going to quit making money if
you don't quit taxing their money, I don't know anybody who has fallen
prey to that kind of shortsighted attitude. I don't know anybody in the
technology industry or in the innovation industry who has fallen prey
to this notion that we are going to stop innovating just because there
is a temporary moratorium on Internet access taxation as opposed to a
permanent moratorium.
The last time I checked, the definition of ``politics'' was that
politics is the art of compromise. We are doing what is necessary to
move a bill. We can stand here and rail against the idea of a good bill
on the idea that we want a perfect bill, or we can pass this bill,
which I presume all these people who are railing against it not being
permanent are planning to vote against the temporary extension when we
get to a vote on it.
Mr. Speaker, I have heard this referred to as partisan politics. This
is not partisan politics. We heard two Democrats get up and say they
support a permanent moratorium. You have heard a number of Republicans
say they support a permanent moratorium. There are people who don't
support a permanent moratorium. A bunch of them are over there on the
Senate side, and they have already made it clear if we deliver a bill
over there, it's not coming back over here. So this is not partisan
politics; it is practical politics. Understand the difference between
partisan politics and practical politics.
Now, I have told you the political reasons why this is a temporary
moratorium. Let me tell you the substantive reasons that this is a
temporary moratorium. I just want to go back and read what I said in my
opening statement. Every time we have extended this moratorium, we have
revised this moratorium. The last time we did it, we had left out a
whole bunch of people in the telecommunications world who thought that
they should have been included in the definition of the moratorium. If
we had made it permanent, perhaps we would have just left it as faulty,
not corrected it. The fact that this is not a permanent moratorium
doesn't mean that we can't go back 2 years from now, 4 years from now,
1 year from now, next month, and do something different.
Mr. Speaker, this is really not the end of the world that this is a
temporary moratorium. This is the beginning of the world. We changed
the moratorium in 2001, in 2004, and we will probably change it again,
because every time we think we know the outer limits of the Internet,
somebody comes along with something else that they can do on the
Internet.
If we made this permanent, as if we had all the answers about what
the moratorium, what the Internet's capacity is going to be, presumably
that would be the end of the discussion, because we would have made
this permanent, gone on to other issues, and not
[[Page H11572]]
been thinking about revisiting this and addressing whatever
shortcomings we might have 4 years from now, as opposed to sometime in
infinity out in the future.
Mr. Speaker, I, for one, am not on the permanent moratorium bill. I
stand here with integrity telling you that I think it would be a
serious mistake to make this a permanent moratorium on Internet
taxation, because we don't have a clue standing here today what the
capacity of the Internet is. Four years from now everything in life may
be being done on the Internet. We might have a virtual world out there
and then we may not be able to tax anything under the moratorium. So we
need to continue to look at this on a regular, systematic basis.
This is not a cavalier decision that we have made. It is a practical,
substantive, smart decision that we have made. I would request that my
colleagues get off of this kind of ``letting the perfect be the enemy
of the good'' notion, support this bill, and let's move on and extend
this moratorium for 4 additional years. It is a good bill.
Mr. CHABOT. Mr. Speaker, I rise in support of H.R. 3678, the Internet
Tax Freedom Act Amendments Act.
The Internet has changed the way we communicate, learn, and do
business--all for the better. Since the Internet tax moratorium was
first adopted, tremendous investment, growth and innovation in the
scope and use of the Internet has occurred. By preventing unnecessary
taxation of the Internet, Congress has fostered growth in productivity,
spurred innovation, and widened public access to information.
This expansion is impressive. However, there is still more that
Congress can do to ensure equal Internet access among all Americans.
Permanently prohibiting unnecessary taxes, such as an Internet access,
is the best course of action for accomplishing this goal.
Mr. Speaker, the surest way to stifle achievement, progress, and
growth is to involve the Government. I urge my colleagues to use H.R.
3678 and its four year extension to work together to permanently extend
the moratorium in order to foster the innovation and the free market
that have been the formula for economic growth and prosperity.
Ms. JACKSON-LEE of Texas. Mr. Speaker, I rise today in support of
H.R. 3678, the ``Internet Tax Freedom Act Amendments Act of 2007.'' I
support this bill because it extends the moratorium imposed by Congress
in the Internet Tax Freedom Act, ITFA, for 4 years, extends the
grandfather protections for my home State of Texas and eight other
States for 4 years for Internet access taxes levied before October
1998, and provides a new definition for Internet access that will
narrow what generally constitutes Internet access.
The Internet Tax Freedom Act, ITFA, was enacted on October 21, 1998,
as Title XI of Division C of the Omnibus Consolidated and Emergency
Supplemental Appropriations Act. The ITFA placed a 3 year moratorium on
the ability of State and local governments to: (1) impose new taxes on
Internet access; or (2) impose any multiple or discriminatory taxes on
electronic commerce. The Act also grandfathered the State and local
access taxes that were ``generally imposed and actually enforced prior
to October 1, 1998[.]''
This initial Internet tax moratorium expired on October 21, 2001. The
Internet Tax Nondiscrimination Act was then enacted on November 28,
2001. It provided for a 2 year extension of the prior moratorium
through November 1, 2003. The moratorium was then extended for an
additional 4 years, through November 1, 2007, by the Internet Tax
Nondiscrimination Act of 2003, Pub. L. No. 108-435 (2004). Taxes on
Internet access that were in place before October 1, 1998, were
protected by a grandfather clause.
Mr. Speaker, I oppose making the Internet Tax Freedom Act, ITFA,
permanent because it would have several significant adverse effects on
the ability of State and local governments, including my home State of
Texas, to raise the revenue necessary to fund programs necessary to
protect the health and safety, and promote the general welfare, of
their citizens.
First, under the current, extremely broad definition of ``Internet
access'' in the ITFA virtually all goods and services delivered over
the Internet would be exempt from State and local taxation. Keeping
this definition in a permanent ITFA could prevent States and localities
from extending their conventional sales taxes to online music, movies,
games, television programming, and similar products.
Many sellers of such content, even if they do not truly provide an
end-user with a connection to the Internet, arguably are selling
``Internet access'' as defined in ITFA: ``a service that enables users
to access content, information, electronic mail, or other services
offered over the Internet.'' For example, the ``Rhapsody'' service sold
by RealNetworks, Inc. streams an unlimited amount of music on demand to
a subscriber for a fixed monthly fee. RealNetworks literally is
providing ``a service that enables users to access content . . . over
the Internet.'' Accordingly, the company could take the position that
the Rhapsody service is tax-exempt ``Internet access'' under ITFA's
definition and refuse to charge tax on it.
Also, the definition of ``Internet access'' includes ``access to
proprietary content, information, and other services as part of a
package of services offered to consumers.'' Nothing in this definition
places any limits on the type or quantity of such ``content,
information, and other services.'' Thus, any Internet access provider
could achieve tax-exempt status for such content and services by
``bundling'' them with ``Internet access'' as conventionally understood
and selling the package for a single, combined price.
Under this definition of ``internet access,'' States and localities
would lose the hundreds of millions of dollars in annual revenue from
their sales taxation of conventional cable TV service and the hard-
media versions of music, movies, software, and computer games sold in
stores. As is illustrated by the rapid growth of Apple Computer's
iTunes music service, the majority of such ``digital content'' is
likely to be distributed over the Internet eventually. The same is
likely with respect to the majority of television programming, which in
some parts of the country is already being distributed via so-called
``Internet Protocol TV'', IPTV. A permanent ITFA with a definition that
seems to encompass all online content and services and that places no
limits on what a telecommunications or cable TV company bundles with
tax-exempt Internet access is likely to lead to a serious long-term
drain on sales tax revenues.
Second, eliminating ITFA's grandfather clause could have far-
reaching, unintended consequences by invalidating a wide array of state
and local taxes currently paid by companies providing Internet access,
such as sales taxes levied on their equipment purchases. ITFA defines a
``tax on Internet access'' as ``a tax on Internet access, regardless of
whether such tax is imposed on a provider of Internet access or a buyer
of Internet access.'' Because of the inclusion in the definition of
taxes on Internet access providers, State and local officials have long
been concerned that Internet access providers could take the position
that a wide variety of taxes to which all types of businesses are
subject constitute indirect taxes on Internet access services and are
therefore banned by ITFA.
Acknowledging the legitimacy of such concerns, language was added to
ITFA in 2004 expressly ``carving-out'' from the definition of a ``tax
on Internet access'' four categories of taxes imposed on Internet
access providers--taxes on ``net income, capital stock, net worth,
or property value.'' However, this list by no means covers all of the
type of taxes Internet access providers may have to pay. For example,
it does not include sales taxes on computer servers purchased by such
companies or state unemployment compensation taxes.
The very limited coverage of the tax carve-out language added to ITFA
in 2004 did not overly-concern State and local officials, because
virtually all of the significant taxes on Internet access providers
potentially at risk had been enacted prior to 1998. Accordingly, ITFA's
general grandfather clause served as a back-stop to the explicit
protection added in 2004. With the grandfather clause eliminated,
however, all State and local taxes on Internet access providers other
than the four types carved-out in the 2004 provision could be at risk.
It is not at all clear that States could convince a court that any
taxes except for the four types explicitly named are still legal when
applied to an Internet access provider. If anything, the fact that some
taxes on Internet access providers were explicitly preserved might
create an inference on the part of a court that Congress intended to
ban all other taxes on providers.
Third, if ITFA's grandfather clause were repealed, State and local
governments in Texas and eight other States would lose existing
revenues from currently protected taxes on Internet access services.
The State of Texas alone stands to lose more than $50 million in annual
revenue. The other eight States--Hawaii, New Hampshire, New Mexico,
North Dakota, Ohio, South Dakota, Texas, Washington, and Wisconsin--and
some of their local governments--would lose collectively between $30
million and $70 million in annual revenue flowing from previously-
grandfathered taxes on Internet access services.
Revenue losses of this magnitude are sufficient to trigger the
provisions of the Unfunded Mandates Reform Act of 1995, which
classifies Federal preemptions of State and local taxing powers as an
unfunded mandate. Most of the taxes directly affected by repeal of the
grandfather clause are conventional State and local sales taxes that
apply to a wide array of goods and services in addition to Internet
access.
[[Page H11573]]
In and of itself, the direct impact of repeal of the grandfather
clause on revenue in the affected States is not significant. In
combination with the other impacts discussed above, however, State
finances would be adversely affected. Due to balanced-budget
requirements, Texas and the eight other States and their affected local
governments would either have to reduce state services or increase
other taxes to compensate for the lost revenue.
For all these reasons, I oppose making the Internet Tax Moratorium
Act permanent. I strongly support H.R. 3678, which extends the
moratorium for four years and retains the protections for Texas and
other States that were grandfathered in the original legislation and I
urge my colleagues to join me in voting for this wise and beneficial
legislation.
Mr. SHAYS. Mr. Speaker, I urge support for H.R. 3678, the Internet
Tax Freedom Act Amendments Act, which extends the current moratorium to
November 2011. I would be inclined to support further extending the
moratorium if legislation is brought to the House floor for my
consideration, and in the past have voted to permanently bar taxation.
The purpose of the moratorium is to prevent the thousands of
overlapping tax jurisdictions across our Nation from laying claim to a
piece of the Internet. Some have argued that States will lose revenue
if they are not allowed to tax the Internet, but this is a false
assumption.
The fact is the Internet economy is generating tremendous tax revenue
for State and local governments. Extending this moratorium will help
sustain our Nation's economic growth. At the same time, making Internet
access more affordable will help reduce what is commonly known as ``the
digital divide.''
Mr. WATT. Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from North Carolina (Mr. Watt) that the House suspend the
rules and pass the bill, H.R. 3678, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds
being in the affirmative, the ayes have it.
Mr. SMITH of Texas. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the
Chair's prior announcement, further proceedings on this motion will be
postponed.
____________________