[Congressional Record (Bound Edition), Volume 147 (2001), Part 14]
[House]
[Pages 19877-19882]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 19877]]

                   INTERNET TAX NONDISCRIMINATION ACT

  Mr. SENSENBRENNER. Madam Speaker, I move to suspend the rules and 
pass the bill (H.R. 1552) to extend the moratorium enacted by the 
Internet Tax Freedom Act through 2006, and for other purposes, as 
amended.
  The Clerk read as follows:

                               H.R. 1552

       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. EXTENSION OF INTERNET TAX FREEDOM ACT MORATORIUM.

       Section 1101(a) of the Internet Tax Freedom Act (47 U.S.C. 
     151 note) is amended by striking ``3 years after the date of 
     the enactment of this Act'' and inserting ``on November 1, 
     2003''.

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


                             General Leave

  Mr. SENSENBRENNER. Madam 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 H.R. 1552, the bill 
under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Wisconsin?
  There was no objection.
  Mr. SENSENBRENNER. Madam Speaker, I yield myself such time as I may 
consume.
  Madam Speaker, I rise in support of H.R. 1552, the Internet Tax 
Nondiscrimination Act. Over the last several years, the Internet has 
revolutionized commerce in a manner few could have imagined. The 
Internet has expanded consumer choices, enhanced competition and 
enabled individuals, as well as brick and mortar retailers, to avail 
themselves of a national marketplace once reserved to a privileged few.
  While government deserves some credit for helping create the 
technological infrastructure of the new digital economy, government 
regulation and taxation threaten to impede its tremendous commercial 
potential.
  In 1998, Congress passed the Internet Tax Freedom Act to facilitate 
the commercial development of the Internet. Contrary to widely held 
impressions, the Internet Tax Freedom Act does not specifically exempt 
Internet retailers from collecting and remitting all sales taxes. 
Rather, it prohibits States from imposing multiple and discriminatory 
taxes on electronic commerce and shields consumers from new Internet 
access taxes. These limited protections will expire on October 21, less 
than a week from today.
  Introduced by the gentleman from California (Mr. Cox), who also 
authored the Internet Tax Freedom Act, H.R. 1552 extends the ban on new 
Internet access taxes and on all multiple and discriminatory taxes on 
electronic commerce. The Subcommittee on Commercial and Administrative 
Law has conducted a number of Internet tax hearings this Congress, and 
I commend the subcommittee chairman, the gentleman from Georgia (Mr. 
Barr), for his thorough and balanced consideration of this issue.
  The version of H.R. 1552 reported by the Committee on the Judiciary 
preserves the protections contained in the Internet Tax Freedom Act 
until November 1, 2003. Renewal of these provisions for 2 years 
represents a compromise approach that simply maintains the existing 
moratorium on Internet taxes. A 2-year renewal also provides the best 
legislative vehicle for getting an Internet tax extension bill to the 
President before its imminent expiration.
  If H.R. 1552 is not passed, Internet commerce will be subject to 
State and local taxes in more than 7,500 taxing jurisdictions. As Chief 
Justice John Marshall recognized over 200 years ago, the ``power to tax 
involves the power to destroy.'' Failure to extend the moratorium may 
result in the imposition of a complex web of taxes that would destroy 
the viability of this critical medium at a time the technology industry 
and broader economy can least afford it.
  Recent events have only underlined the fragility of the technology 
sector. Information technology companies have been buffeted by falling 
stock prices and signs of a deepening economic downturn. The last thing 
these companies need is more uncertainty, and passage of H.R. 1552 will 
provide a measure of stability during this turbulent period.
  Last year, the House overwhelmingly passed an extension of the 
Internet tax moratorium by a vote of 352 to 75, but this measure did 
not receive a vote from the other body. This year there is no time to 
delay, and I urge support of the bill.
  Madam Speaker, I reserve the balance of my time.
  Mr. DELAHUNT. Madam Speaker, I yield myself such time as I may 
consume.
  Madam Speaker, the bill we are considering today is clearly a 
substantial improvement over the original proposal considered last week 
by the House Committee on the Judiciary. That bill would have proposed 
a permanent moratorium on Internet access fees and a 5-year moratorium 
on so-called multiple and discriminatory taxes on the Internet.
  During the course of our proceedings, an amendment, which I 
cosponsored along with the gentleman from Alabama (Mr. Bachus) and the 
gentleman from North Carolina (Mr. Watt), the ranking member of the 
subcommittee, did prevail in committee and reduced the duration of the 
moratorium to 2 years in both cases.
  My own preference would have been to continue the moratorium only to 
June 30 of 2002 as proposed in recent legislation filed by Senators 
Dorgan, Breaux, and Hutchison of Texas to hopefully solve the real 
problem.
  It is important to note, Madam Speaker, that much of the discussion 
of this issue has been misleading. Some have suggested that those in 
favor of a moratorium of short duration somehow support taxing the 
Internet.
  Well, let us be clear once and for all. I am not aware of any Member 
of this body on either side of the aisle who favors or supports a tax 
or a fee on accessing the Internet to sell or purchase anything. To my 
knowledge, that position is shared by the governors and State 
legislatures of all 50 States. Governors in State legislatures do not 
want to tax the Internet. Let me say that again, Madam Speaker. They do 
not want to tax the Internet. They simply want to collect the sales 
taxes that they have been collecting for years. Taxes for which they 
rely upon for nearly 50 percent of their revenues.
  But they cannot do that any more, Madam Speaker, because of the 
United States Supreme Court decision which prohibited a State from 
collecting sales taxes from out-of-State businesses which do not have a 
physical presence in that State. However, the Supreme Court said that 
Congress could authorize the State under the commerce clause to collect 
those taxes, but we have not done so. And the results of our failure 
have been devastating.
  Let me give some examples. Uncollected sales taxes on Internet 
purchases are projected to cost the States nearly $15 billion in 
anticipated sales tax revenues this year, this year alone. Unless there 
is a system in place that enables State and local governments to 
collect taxes on their sales to in-state residents, these annual losses 
from online sales will grow to $45 billion by 2006 and $55 billion by 
2011 with total losses during the 10-year period coming to 
approximately $440 billion.
  What does this mean for the individual States? To take just a few 
examples, my home State of Massachusetts will lose $200 million this 
year, with losses climbing to approximately $830 million by 2011. 
Florida, which relies on the sales tax for some 57 percent of its 
annual revenues, will lose some $930 million this year with its losses 
5 years from now exceeding some $3 billion. Texas will lose over $1 
billion this year and a staggering $4 billion in the year

[[Page 19878]]

2006. These losses are magnifying the fiscal problems the States are 
already experiencing because of the economic slow down.
  In March, The Washington Post reported that the States' fiscal 
outlooks having been hammered by a combination of spiralling Medicaid 
costs and the forecast of lower State revenues from all sources, 
including personal income, corporate and sales taxes. One can only 
imagine what the consequences of the events of September 11 will mean 
to State balance sheets. But I did notice where the Governor in 
Michigan, Governor Engler was quoted just last week saying, and again 
these are his words, ``Our economies were weak beforehand, and now they 
are quite shaky.'' End of quote.
  Well, what does this really mean to the States? They will either have 
to curtail basic services such as police, fire protection, and 
education or raise income taxes, raise property taxes, raise corporate 
taxes or find some other revenue source to meet their obligations.
  I find it fascinating that there seems to be strong bipartisan 
agreement on a $2.50 increase per ticket to finance airport and airway 
safety. By the way, that new tax will be collected whether the ticket 
is purchased over the counter, or over the Internet. But there is no 
such consensus to help the States fund resources critical for police, 
fire, emergency medical responders, and the public health care 
facilities that were and will be the first responders if there should 
be, God forbid, another terrorist attack on this country.
  How ironic. And that is not all. By failing to act, we are putting at 
risk the thousands of small businesses that sustain our economy. Those 
main street merchants in our neighborhoods and communities who make up 
the local Chambers of Commerce who contribute so much to our community. 
How can they compete where there is no sales tax parity?
  We should not continue to stand by while remote sellers enjoy an 
unfair advantage over the so-called brick and mortar retailers. One can 
just imagine deserted shopping malls and empty store fronts in the 
downtowns of American communities. Well, the digital divide should not 
be extended to American businesses and those who patronize them. If we 
do not meet our responsibilities, we will be creating two classes of 
American businesses and two classes of American consumers and no level 
playing field for either.
  As Governor Engler of Michigan said, ``It is time to close ranks, 
come together, and stand up for main street America because fairness 
requires that remote sellers collect and pay the same taxes that our 
friends and neighbors on main street have to collect and pay.''

                              {time}  1530

  Former Senator Slade Gorton of Washington was right when several 
years ago he said, and again I am quoting the Senator, ``We kicked this 
down the road in 1998 when we should have debated it and resolved 
things. What we don't need is another extension. We should come back 
next year before the current moratorium expires and deal with these 
issues.''
  So I say, Madam Speaker, it is time that we respect the States and 
the concept of Federalism that used to be in vogue in this body some 
time ago but seems to have fallen out of fashion, unfortunately. 
Despite our failure to assist them in their efforts, the States have 
met their end of the bargain. By their own initiative, they have formed 
the 30-State Streamlined Sales Tax Project. Twenty States have adopted 
model legislation that authorizes them to create a uniform simplified 
sales-and-use tax system, and a majority of the States will likely be 
on board within the year. They understand that the longer the issue is 
unresolved, the more serious the economic situation will become. Small 
businesses will be filing for bankruptcy and State and local 
governments will confront a severe fiscal crisis.
  It is time for us to meet our responsibility. It is time for us to 
enact legislation giving the States the authority to implement the 
streamlined and simplified system, which would enable remote sellers to 
collect and remit sales taxes without burdening the Internet or 
interstate commerce. I genuinely believe that the stakeholders, 
finally, on all sides of the issue are ready to move forward to develop 
this system; and it is up to us to see it happens before this extension 
expires. So, for now, I urge support for the bill.
  Madam Speaker, I reserve the balance of my time.
  Mr. SENSENBRENNER. Madam Speaker, I yield 5 minutes to the gentleman 
from California (Mr. Cox), the author of the bill.
  Mr. COX. Madam Speaker, I thank the gentleman for yielding me this 
time and for the good work of the Committee on the Judiciary in 
bringing this bill to the floor just in the nick of time; and I thank 
my colleague, the gentleman from Massachusetts (Mr. Delahunt), for his 
support in the minority.
  It is vital, with only a few days remaining before the expiration of 
the 3-year-old moratorium on special multiple and discriminatory taxes 
on the Internet, that we extend it; that we not let a lapse occur. 
Because, honestly, my colleagues, if we do that, all hell may break 
loose. And people may then ask us, when they are not focused on other 
issues, where we were and how we let this happen.
  Back in 1996, when Senator Ron Wyden and I first began drafting the 
Internet Tax Freedom Act, which is now the law on the books that we are 
seeking to extend, our interest was to ensure that the Internet, which 
is not just a national but a global medium, not fall victim to the 
tyranny of the parochial.
  My colleague, the gentleman from Massachusetts (Mr. Delahunt), is 
exactly right when he says the Governors and the State legislatures are 
not out to tax the Internet. But we should not kid ourselves, many, 
many, many special tax districts, utility commissions, regulatory 
agencies, and excise bureaus, 30,000 of them, are lying in wait ready 
to pounce.
  The Internet's global nature, its decentralized packet-switched 
architecture makes it inherently vulnerable to multiple taxation and 
special and discriminatory taxation. Even the United Nations sought, 
before we passed this legislation, to impose a bit tax, that is a tax 
specifically aimed only at electronic commerce, that would tax our e-
mail, the transfer of any file. The more zeros and ones, the more bits, 
the higher the tax. This law, which is on the books and which we are 
seeking to extend, outlawed all of that, certainly at least in America; 
but it also encouraged the executive branch to show leadership on the 
national and international stage to make sure we do not have these 
exactions on the Internet from abroad. The Clinton and Bush 
administrations have both been superb in execution of that 
congressional instruction.
  Before this law was passed 3 years ago, here is what was about to 
happen, and here is what will happen beginning Sunday night if we do 
not act: Tacoma, Washington, had required Internet service providers to 
pay a 6 percent gross receipts tax, even for national Internet service 
providers without any employees in Tacoma. Tacoma's law also required 
everyone, even foreign, non-U.S. sellers who sold a product over the 
Internet to a Tacoma resident, to pay a $72 annual business fee in that 
city.
  Vermont and Texas were moving forward to impose more onerous tax 
obligations on merchants who take orders via the Internet than the same 
merchants who took orders via the telephone.
  Alabama had classified Internet service as a public utility. The 
Internet service was going to be a public utility. ISPs were going to 
have pay the same gross receipts tax as Bell South and local water 
utilities.
  Florida had imposed a 7 percent tax on the sale of Internet access; 
but not only access, an additional 2\1/2\ percent tax on the gross 
receipts from any business on the Internet. It was also allowing cities 
to impose additional telephone fees on Internet access service, even 
though telecommunications are the highest taxed legal commodity in the 
country.

[[Page 19879]]

  Tennessee began to tax Internet access as an intrastate 
telecommunications service.
  Connecticut began taxing Internet access as a data processing 
service.
  Out my way, in Southern California, the city of San Bernardino began 
taxing Internet access as a teletypewriter exchange service, a great 
example of a law and regulatory authority on the books from way before 
the birth of the Internet that was now being interpreted not by 
Governors and State legislators, but by bureaucrats and regulators to 
impose taxes on the Internet.
  Chicago began to tax Internet access as a lease of tangible personal 
property.
  In Texas, the State comptroller who testified before my committee 
had, at the time of enactment of this law, dropped his plan to tax 
Internet access as a telecom service, but was moving forward to tax it 
as an information service.
  The Internet Tax Freedom Act stopped all of this activity in its 
tracks, and the results have been essentially positive. The truth is 
that our whole economy is slowing down right now, and not the least of 
all the tech sector. So it is vitally important, as we seek to put the 
Nation's economy back on its feet, that we not backslide on this wise 
policy that we adopted 3 years ago.
  H.R. 1552 is endorsed by a number of taxpayer advocates, a number of 
sound economy groups, Americans For Tax Reform, the U.S. Chamber of 
Commerce, Business Roundtable, the Information Technology Association, 
Software and Information Industry Association, Information Technology 
Industry Council, American Electronics Association, and so on. But it 
is also endorsed by the National Conference of State Legislatures and 
the National Association of Counties, because this is not a threat to 
local government.
  I urge my colleagues' vote in support of this legislation.
  Mr. DELAHUNT. Madam Speaker, may I inquire as to the time remaining.
  The SPEAKER pro tempore (Mrs. Biggert). The gentleman from 
Massachusetts (Mr. Delahunt) has 8\1/2\ minutes remaining, and the 
gentleman from Wisconsin (Mr. Sensenbrenner) has 11\1/2\ minutes 
remaining.
  Mr. DELAHUNT. Madam Speaker, I yield such time as he may consume to 
the gentleman from Oklahoma (Mr. Istook).
  Mr. ISTOOK. Madam Speaker, the sky is not falling. On October 21 we 
are not going to be hit by a great rush of jurisdictions saying now we 
are going to impose taxes on the Internet. We are not under an 
emergency circumstance on that. We have many emergencies in this 
country; trying to stop some unnamed jurisdictions from adopting a 
sudden tax is not an emergency.
  However, dealing with the overall issue of drawing the ground rules 
for how the Internet is treated in comparison with other legitimate 
businesses is very important. That is why it is important that Congress 
not take an attitude of saying we are going to stick our head in the 
sand for any period of time, 5 years, 2 years, any amount of time.
  I oppose any sort of effort to single out the Internet or Internet 
merchants for taxation, to say we are going to have multiple taxes 
because a business does business through the Internet or discriminatory 
taxes because they do that. I also oppose singling out merchants that 
do not deal through the Internet; to say that they are going to be 
paying taxes that others that sell to those same customers are not 
required to pay or to collect.
  We need a fair tax system when it comes to the Internet. We need a 
fair tax system when it comes to merchants that are not using the 
Internet. That is my concern, that we will hide our head in the sand 
rather than addressing the tough issues. That is why I am pleased that 
we are not talking about a 5-year moratorium anymore. We are talking 
about a bill that is now on the floor that has been reduced down to 2 
years; and frankly, it is very possible that the Senate will decide 
that even 2 years is too much. However, we need to keep things alive by 
moving the legislation; and I support that, so that we have an 
opportunity to grapple with the tough issues that some people do not 
want to grapple with.
  Now, what are those tough issues? Well, first, let me mention the 
National Governors' Association, which keeps up with what is going on 
in their States and all their jurisdictions within their States. They 
tell us there is nobody about to jump in and do this, to create new tax 
systems. Whatever may have been the situation 5 years ago is not the 
circumstance today. Most State legislatures are not even in session, 
and there is certainly a lot of lead time with any jurisdiction that 
might jump up and say, oh, we want to create an Internet tax mechanism.
  The National Governors' Association has asked us not to take up any 
moratorium unless we deal with the underlying issue of what the bill 
does not say but what it does, which is to try to chill efforts to have 
a fair, uniform system regarding sales tax that is fair and 
nondiscriminatory and simplified and uniform for merchants doing 
business in whatever way. That is what the States are doing.
  I am pleased that a year ago, when we had a 5-year extension on this 
floor, two-thirds of this body, two-thirds, actually more than two-
thirds of the House of Representatives, put in guidelines that said we 
want the States to work together, we want them to make a compact that 
says we will have a uniform standard, a multi-State compact that avoids 
multiple taxation, that simplifies the complicated sales tax systems 
that have different definitions in different States, so that we will 
not be discriminating across State lines or within State lines. That 
effort is underway.
  As has been pointed out by other speakers, there are over 30 States 
involved in the effort, and more expected to join in. And we expect 
them to have some results to bring back to us before the 2 years is up, 
and that is where Congress needs to address the issue and not avoid the 
issues.
  Madam Speaker, I think it is important that we remember that the 
Congress is not a body of unlimited jurisdiction. The Constitution 
specifies where we have authority that relates to interstate commerce 
and also where the States have authority; that the power not expressly 
given to the Congress nor denied to it reside with the States and the 
citizens thereof. If all power to determine the level of State and 
local taxes resides in Washington, D.C., we remove it from the people 
in the States. And if we starve out the premier tax base that supports 
schools, highways, public safety, public health, the sales tax base of 
the States; if we either by action or inaction destroy the States' tax 
base, we have destroyed the power and the authority of the States, we 
have destroyed the Federal system, we have shifted power away from the 
States, away from the communities, away from local citizens, away from 
our neighborhoods; and we will have moved it to Washington, D.C. We do 
not want that.
  That is why we need to address all the issues, not single out one or 
two that looks good in a headline so that we can say, ``I voted against 
taxes,'' but also the issues where we say, ``I voted for fairness, I 
voted to let people back home to continue making their decisions, that 
long belong to them,'' rather than usurping them.
  Madam Speaker, it is important that we allow the Senate to address 
this issue, because they have not before; and moving this legislation 
will help get the Senate involved in the process. But I hope the 
ultimate result is going to be that we in the Congress support a 
uniform streamlined system that is just as fair to the merchants in our 
communities as it is to the merchants that bring their wares into our 
homes and businesses through the Internet. That is fair and equal, a 
level playing field, as we often say, between merchants of all types, 
which says that no one gets an advantage or a disadvantage because they 
use the Internet or because they set up a store on the corner.

[[Page 19880]]



                              {time}  1545

  Mr. SENSENBRENNER. Madam Speaker, I yield 3 minutes to the gentleman 
from Virginia (Mr. Goodlatte).
  Mr. GOODLATTE. Madam Speaker, I rise today in support of H.R. 1552, 
the Internet Tax Nondiscrimination Act, and I commend the gentleman 
from California (Mr. Cox) for championing this legislation to keep the 
Internet free from unfair and burdensome taxation. I also commend the 
gentleman from Wisconsin (Mr. Sensenbrenner) and the gentleman from 
Georgia (Mr. Barr) for advancing this important legislation through the 
Committee on the Judiciary.
  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 5 days, subjecting the Internet to possible taxation from more than 
7,500 taxing jurisdictions. If the moratorium is permitted to expire, 
it will send a signal to each of these taxing jurisdictions that the 
Internet is fair game for unfair and discriminatory taxation. This is a 
serious threat to our efforts to ensure that the Internet continues to 
expand and grow.
  Congress created the Advisory Commission on Electronic Commerce in 
1998 to study Internet taxation and submit a report of its findings to 
Congress. In its report, the Commission recommended that the Internet 
tax moratorium be extended. Following the advice of the Commission, the 
Internet Tax Nondiscrimination Act will extend the current moratorium 
for 2 years, protecting millions of Internet users from unfair and 
discriminatory taxes, and from taxes on their monthly Internet access 
charges.
  These types of taxes are some of the most regressive. If we increase 
the cost of accessing the Internet by charging an access tax, those 
that will be hit the hardest will be those in the lowest income 
brackets, which will widen the digital divide. An increase in the cost 
of Internet access is a serious impediment to those individuals having 
access to the benefits of the Internet, such as on-line education, 
commerce and communication.
  In the words of President Reagan, ``The government's view of the 
economy could be summed up in a few short phrases: If it moves, tax it. 
If it keeps moving, regulate it. If it stops moving, subsidize it.'' 
That should not be the model for growth of the Internet. It is clear if 
the potential of the Internet is to be fully realized, we must allow it 
to continue to flourish by ensuring that the qualities that made the 
Internet a revolutionary tool for both business and consumers, freedom 
from burdensome government regulations and taxation, remain fundamental 
components of the Internet for future generations.
  Madam Speaker, I urge my colleagues to continue to ensure that the 
Internet remains free from restrictive taxation by joining me in voting 
for the Internet Tax Nondiscrimination Act.
  Mr. DELAHUNT. Madam Speaker, I reserve the balance of my time.
  Mr. SENSENBRENNER. Madam Speaker, I yield 1 minute to the gentleman 
from Illinois (Mr. Weller).
  Mr. WELLER. Madam Speaker, I commend the chairman for his expedited 
handling of this legislation, and particularly the gentleman from 
California (Mr. Cox) for his leadership on this legislation year after 
year.
  This week we have the opportunity to cast two, maybe three votes 
which are so important in this new economy in support of technology. We 
will have an opportunity later this week to vote in favor of the 
Economic Security and Recovery Act, legislation necessary to help 
revitalize the technology sector. Hopefully in the next week or two we 
will have an opportunity to vote for the trade promotion authority the 
President has asked for, and today we will vote to keep the Internet 
tax free.
  Madam Speaker, one of the lessons that we have learned over the last 
decade, in talking to those involved in the new economy and those 
involved in the creativity of the technology sector, is the question: 
Why has the technology sector created one-third of all new jobs in the 
last decade? Why are more than half of American households on-line 
today? The answer is simple, government stayed out of the way. We had a 
regulation free, tax free, trade barrier free new economy to provide a 
tremendous amount of opportunity, creating a new technology sector.
  This legislation is so important to keep that kind of environment in 
place. Let us keep the Internet tax free, and vote to extend the 
Internet tax moratorium for two more years.
  Madam Speaker, I rise today in support of H.R. 1552, The Internet Tax 
Nondiscrimination Act.
  It is vital that we extend the moratorium as it is set to expire in 
five short days. Absent our action today to renew the moratorium, the 
floodgates will be open--and our nation's 30,000 taxing jurisdictions 
could once again try to lay claim to a piece of the Internet by 
imposing special taxes on the Internet. While I support extending the 
moratorium for 2 more years I think that a more permanent solution is 
needed. We need to assure Americans that government will not place 
special burdens on the new economy.
  While the tax moratorium imposed by the 1998 law was only three years 
in duration, its fundamental structure is ideally suited to be extended 
far beyond this year. Instead of barring all Internet taxes, it only 
bans those taxes that single out the Internet for special treatment. 
Whatever disagreements there might be on other aspects of the Internet 
tax debate--such as the broader issue of sales taxes--there is clear 
agreement that the Internet must never be subject to special multiple 
or discriminatory taxes.
  In the past 10 years, the Internet has changed the way the world does 
business. 17 million households shopped online in 2000. Small 
businesses who use the Internet have grown 46% faster than those that 
do not. The Internet should be tax free and barrier free, nor should 
electronic commerce be subject to new, multiple targeted taxes.
  Much consideration must be taken whenever you are considering 
changing the tax rules not just for the nation's economy but for the 
global economy. We need to foster continued growth of the Internet and 
electronic commerce without imposing a burdensome and confusing tax 
regulations.
  With time running out, it is critical that we extend the Internet tax 
moratorium while continuing the effort to make the moratorium 
permanent.
  Mr. SENSENBRENNER. Madam Speaker, I yield 2 minutes to the gentleman 
from Texas (Mr. Smith).
  Mr. SMITH of Texas. Madam Speaker, the current moratorium on Internet 
taxation is soon set to expire. Someone once said that the three 
greatest discoveries of humankind are fire, the wheel, and the 
integrated circuit. Each of these discoveries ushered in a new era of 
human development and advancement. And although the integrated circuit 
is only 50 years old, it has changed the world. The integrated circuit 
and its offspring, the Internet, have played dominant roles in 
transforming our lives for the better.
  Even though America has seen a dramatic increase in the number of 
homes wired to the Internet, last month the Department of Commerce 
released a report showing that e-commerce actually has decreased in the 
second quarter of this year.
  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, would discourage companies and consumers from 
using the Internet to conduct business, and would create regional and 
international barriers to global trade.
  On the other hand, of course, we do need to recognize the legitimate 
concerns of States that want to have the option of taxing sales. But 
failure to renew an extended moratorium will tell the high-tech sector 
of our economy that it is open season for Internet taxes and send a 
message to local and State tax authorities that new, multiple, and 
discriminatory Internet taxes may be imposed. We do not want to do 
that.
  Madam Speaker, it is vital that Congress act quickly to ensure 
Americans that government will not place additional burdens on the new, 
fragile economy.
  Mr. DELAHUNT. Madam Speaker, I yield myself such time as I may 
consume.
  Madam Speaker, let me conclude by saying I look forward to working 
with

[[Page 19881]]

the chairman of the committee, as well as the gentleman from Texas, in 
dealing with both issues here, keeping the Internet tax free and at the 
same time providing those options to the States so they can meet their 
fundamental responsibilities.
  As I indicated earlier, and I believe the gentleman from Texas was 
present in the Chamber at the time, we have a real problem, his home 
State being one in particular, where this year it is anticipated that 
in excess of $1 billion will be lost to that particular State in terms 
of anticipated sales tax revenue.
  Mr. CONYERS. Madam Speaker, I rise in support of H.R. 1552, ``The 
Internet Tax Nondiscrimination Act'' which extends the present 
moratorium on Internet access taxes and multiple and discriminatory 
taxes for two years, from 2001 through 2003.
  Maintaining the current system allows the potential for significant 
financial loss for states and localities. Sales taxes constitute the 
most important State and local revenue source, with the census bureau 
estimating that nearly one half of State and local revenues come from 
sales taxes. Projections of increasing online sales indicate huge 
revenue losses for states and local government. For example, my own 
state of Michigan is estimated to lose $500 million in foregone sales 
taxes this year under the present system.
  This inevitably translates into the loss of important funding for 
quality education, effective public safety, and other basic services. 
In Michigan the lost revenue from foregone sales taxes will cost my 
state the equivalent of 100,000 teachers or police officers this year. 
Think of how much we could do to reduce class sizes, build new schools, 
improve our quality of education and protect our streets with these 
funds.
  A separate concern is the adverse impact of the present bifurcated 
system on poor citizens and minorities. According to a Commerce 
Department study, wealthy individuals are 20 times more likely to have 
Internet access, and Hispanics and African Americans are far less 
likely to have such access. This means that poor and minorities who 
only buy locally face a far greater sales tax burden than their 
counterparts. Maintaining the present system will only serve to 
perpetuate that disparity.
  Steps are being taken to simplify the sales tax system, such as 
streamlining the rules and regulations of the 7,500 taxing 
jurisdictions in the U.S. Thus far, this streamlined tax system has 32 
states participating in the effort to simplify tax rates and definition 
of taxable goods and certifying software that will make it easier for 
retailers and e-tailers. Nineteen states have enacted simplification 
legislation and another ten have introduced legislation for 
consideration.
  A two-year extension is a far more appropriate solution than a longer 
moratorium. There is a real risk that extending the moratorium for 
longer than two years would unduly delay this issue and create a 
situation where the states have no incentive to reform their laws. This 
would have the effect of codifying into law the present state tax 
system which would force states, who rely on sales tax revenue, to 
either raise other taxes or cut basic services.
  A shorter extension would allow the States to continue the very 
serious steps they have already taken to reform and simplify their 
laws. Then we could consider whether we should approve any interstate 
process effectuating these simplification efforts. If the States are 
not making any progress by the end of such a moratorium, it would be a 
simple matter to extend the moratorium for an additional period of 
time.
  A long extended moratorium is opposed by the National Governors 
Association--which sent a letter signed by 44 Governors, including 22 
Republican Governors, by organized labor (through the AFL-CIO, NEA, 
AFT, and AFSCME) and by business (through the National Retail 
Federation, Wal-Mart, Sears, Home Depot, and K-Mart).
  A two-year extension will give Congress the opportunity to work 
together on a bipartisan basis to solve the larger simplification 
problems facing us. I urge a ``yes'' vote on this legislation.
  Mr. TOM DAVIS of Virginia. Madam Speaker, I rise today as an original 
sponsor and enthusiastic supporter of H.R. 1552, the Internet Tax 
Nondiscrimination Act. I continue to favor the five-year extension 
originally contained in this legislation and advocated by the Advisory 
Commission on Electronic Commerce. Such an extension would ensure 
predictability and foster further innovation. I will support the two 
year extension, however, because I believe it is of paramount 
importance not to allow the moratorium to expire. Despite the current 
downturn in the economy, the Internet continues to flourish as the most 
unique and vibrant global communication and commercial tool. Its 
important role in our society and economy continues to expand.
  Yet an ever-present concern plagues many of us who understand the 
need to foster the Internet's continued growth: that government 
interference in the electronic marketplace--whether it be through 
regulation or tax policy--will create barriers that interfere with the 
transformation of the Internet into the repository of global 
communications and commerce for the 21st century.
  Three years ago, we recognized that state and local taxation in 
electronic commerce would require a thorough analysis before we could 
formulate a balanced and restrained federal policy on the taxation of 
goods and services sold over the Internet. While most of us agree that 
regulation of the Internet would hinder technological innovation and 
economic growth, we also understand the legitimate needs of state and 
local governments who use sales tax revenue to fund services for their 
citizens. Therefore, we enacted a 3-year moratorium on Internet access 
taxes and multiple and discriminatory taxes on goods and services sold 
over the Internet. We also created the Advisory Commission on 
Electronic Commerce to begin that process and identify all of the 
integrated issues that arise in the context of taxation and the 
Internet Economy. In its report issued in April 2000, the Commission 
recommended, among other things, that the current moratorium be 
extended at that time for another 5 years.
  I understand that some of my colleagues believe the moratorium should 
not last as long as 5 years and others believe that we have to address 
this important issue in a comprehensive manner. I wholeheartedly agree 
with the latter concern--this issue needs to be resolved in a 
methodical and holistic manner. But we need to implement a realistic 
time frame that will allow us to resolve each and every layer of the 
problems presented by taxation in a digital world.
  As I noted during House consideration of this legislation last year, 
this problem cannot be about politics. This is not a zero-sum equation, 
and it's important for the health of our economy that we resolve this 
complicated issue with deliberative evaluation. This is one of the most 
important long-term economic policy decisions that our nation will 
make, and I want to congratulate my colleagues, Chairman Sensenbrenner 
and Congressman Cox for their steadfast leadership in ensuring that we 
resolve this issue before the October 21st expiration of the current 
moratorium. I urge all of my colleagues to support H.R. 1552 and look 
forward to continued efforts to address the substantive issues in this 
debate.
  Ms. JACKSON-LEE of Texas. I would like to thank Judiciary Committee 
Chairman James Sensenbrenner and Ranking Member John Conyers for 
working to pass this legislation through the Committee and proceed to 
the floor of the Congress for a vote.
  The legislation before us today, H.R. 1552, seeks to extend the 
current Internet tax moratorium, prohibiting states or political 
subdivisions from imposing taxes on transaction conducted over the 
Internet, through 2003.
  Presently, ten states including Texas have taxes on Internet access 
charges. These states should be allowed to continue this practice. I 
supported this two-year extension in Committee because it would not bar 
states such as Texas from collecting these greatly needed tax revenues. 
States would be allowed to be ``grandfathered in'' under an exemption 
from the moratorium.
  Under current law, there is a limited moratorium on state and local 
Internet access taxes as well as multiple and discriminatory taxes 
imposed on Internet transactions, subject to a grandfather on taxes of 
this nature imposed prior to 1998. The current moratorium is scheduled 
to expire on October 21, 2001, and was merely designed as an interim 
device to allow a commission to study the problem of Internet taxation.
  I elected to vote for this two-year moratoriums as long as those 
states across our nation which currently rely on these crucial revenue 
streams are allowed to continue. This legislation provides for such a 
compromise.
  Without such a compromise, state and local governments would lose a 
substantial amount of sales tax revenue and telecommunication tax 
revenue if we were to extend the moratorium on Internet taxation for 
five years as a prior plan advocated. According to Forrester Research, 
if e-commerce continues to explode, U.S. sales over the Internet will 
be almost $350 billion by 2002. If state and local governments were 
prohibited from taxing this segment of their tax base, financing 
important state and local programs and services would become 
increasingly difficult.
  State and local governments use the sales tax as a means to provide 
nearly one-quarter of all the tax revenues used to fund vital programs 
and services to their communities. It is

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estimated that State and local governments are presently losing 
approximately $5 billion in sales tax revenues as a result of their 
inability to tax the majority of mail order Internet sales. This simply 
is not fair.
  According to the Center for Budget and Policy Priorities, state and 
local governments could be losing additional $10 billion annually by 
2003 if Internet sales were to continue to be exempt from sales tax 
imposition. Loss of revenue of this magnitude would threaten the strong 
fiscal position of many states if economic conditions begin to 
deteriorate. The additional loss of Internet transaction tax revenues 
and the possibility of losing taxes on telephone services due to its 
incorporation into the Internet could accelerate depletion of many 
state surpluses without increased taxes in some other area or making 
significant reduction in expenditures.
  This loss of revenue would also curtail the ability of states and 
localities to meet the demands for major improvements in education. A 
permanent tax prohibition on Internet sales would deprive state and 
local governments of a great resource to fund desperately needed 
improvements in their education systems.
  Furthermore, enacting the previously suggested five-year moratorium 
on state Internet taxation would tip the scales, benefiting those with 
wealth and access to the Internet at the expense of low- and moderate-
income individuals, particularly because those who usually make 
purchases over the Internet are more affluent than those who do not. 
Considering the impact of the digital divide on our society, many 
minorities and low-income people who do not purchase goods via the 
cyber world would pay a disproportionate share of state and local sales 
taxes.
  The majority of low-income households lack the resources to purchase 
equipment to access the Internet, train on its usage, or lack the 
financial stability to have a credit card. Individuals with access to a 
computer and the Internet would avoid taxation on the purchase of a 
good or service that would be taxed if a person without this access 
purchased the same good or service from their neighborhood stores.
  If we allow Internet transaction to be completely exempt from tax, 
state and local governments may likely increase their sales tax rates 
to make up for the shortfall in Internet tax revenue. The consequences 
of this could be devastating to low- and moderate-income persons who do 
not benefit from the tax free Internet environment. Moreover, those 
with access to the Internet would be further deterred from purchasing 
goods or services from retail establishments, thus increasing the tax 
burden of the less affluent.
  The current moratorium on Internet taxation is about to expire. I am 
confident that states can adapt their sales tax systems to capture 
revenue on Internet transactions. Our states are making great strides 
to update their systems and equalize the tax burden for all segments of 
society.
  The plan before us today balances the need expressed by some Members 
of Congress that a temporary moratorium is necessary, with the 
importance of preserving and securing the revenue streams of states 
such as Texas, which rely so heavily on Internet taxes for education 
and our quality of life.
  Mr. DELAHUNT. Madam Speaker, I yield back the balance of my time.
  Mr. SENSENBRENNER. Madam Speaker, I yield back the balance of my 
time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Wisconsin (Mr. Sensenbrenner) that the House suspend the 
rules and pass the bill, H.R. 1552, as amended.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the bill, as amended, was passed.
  The title of the bill was amended so as to read: ``A bill to extend 
the moratorium enacted by the Internet Tax Freedom Act through November 
1, 2003; and for other purposes.''.
  A motion to reconsider was laid on the table.

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