[Congressional Record (Bound Edition), Volume 147 (2001), Part 10]
[Extensions of Remarks]
[Page 13738]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 13738]]

         INTRODUCTION OF THE INTERNET TAX FAIRNESS ACT OF 2001

                                 ______
                                 

                           HON. BOB GOODLATTE

                              of virginia

                    in the house of representatives

                         Tuesday, July 17, 2001

  Mr. GOODLATTE. Mr. Speaker, I am pleased to introduce today, along 
with my good friend, Mr. Boucher, the Internet Tax Fairness Act of 
2001.
  This much-needed bipartisan legislation permanently extends the 
current moratorium on Internet access taxes and multiple and 
discriminatory taxes. In addition, this legislation clarifies state and 
local authority to collect business activity taxes from out-of-state 
entities.
  As many of you know, the Internet Tax Fairness Act of 1998 created a 
moratorium on Internet access taxes and multiple and discriminatory 
taxes. As a result of this moratorium, the Internet has remained 
relatively free from the burdens of new taxes. However, the moratorium 
is set to expire in October, subjecting the Internet to possible 
taxation from more than 7,500 taxing jurisdictions. We must continue to 
ensure that the Internet remains free from restrictive taxation by 
making the tax moratorium permanent.
  In addition, many States and some local governments levy corporate 
income and franchise taxes on companies that either operate or conduct 
business activities within their jurisdictions. While providing revenue 
for States, these taxes also serve to pay for the privilege of doing 
business in a State.
  Supreme Court precedent is clear that a state cannot impose a tax on 
an out-of-state business unless that business has a ``substantial 
nexus'' with the taxing state. In addition, over forty years ago, 
Congress passed legislation to ensure that states could not tax the 
income of out-of-state corporations whose in-state presence was 
minimal. Public Law 86-272 set uniform, national standards for when 
states could and could not impose such taxes. However, like the economy 
of the time, Public Law 86-272 was limited to tangible personal 
property.
  With the growth of the Internet, companies are increasingly able to 
conduct transactions without the constraint of geopolitical boundaries. 
The increasing rate of interstate and international business-to-
business and business-to-consumer transactions raises questions over 
states' ability to collect income taxes from companies conducting 
business within their jurisdiction.
  Over the past several years, a growing number of states have sought 
to collect business activity taxes from businesses located in other 
states, even though those businesses receive no appreciable benefits 
from the collecting states and even though the Supreme Court has ruled 
that the Constitution prohibits a state (without the consent of 
Congress) from imposing tax on businesses that lack substantial 
connections to the state. This has led to unfairness and uncertainty, 
generated contentious, widespread litigation, and hindered business 
expansion, as businesses shy away from expanding their presence in 
other states for fear of exposure to unfair tax burdens.
  In this period where the rapid growth of e-commerce will shape the 
economy of the 21st century, this expansion of the States' power to 
impose business activity taxes, left unchecked, will have a chilling 
effect on e-commerce, interstate commerce generally, and the entire 
economy as tax burdens, compliance costs, litigation, and uncertainty 
escalate.
  Accordingly, the second recommendation of the Advisory Commission on 
Electronic Commerce majority was that Congress establish national 
standards for when states can impose business activity taxes.
  That is why we are introducing this important legislation today. The 
Internet Tax Fairness Act establishes definite, specific standards to 
govern when businesses should be obliged to pay business activity 
taxes, which will ensure fairness, minimize litigation, and create the 
kind of legally certain and stable business climate which encourages 
businesses to make business investments, expand interstate commerce, 
grow the economy and create new jobs. At the same time, this 
legislation will ensure that states and localities are fairly 
compensated when they provide services to businesses with a substantial 
physical presence in the state.
  I urge each of my colleagues to support this very important 
bipartisan legislation.

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