[Congressional Record (Bound Edition), Volume 147 (2001), Part 3]
[Senate]
[Pages 3391-3392]
[From the U.S. Government Publishing Office, www.gpo.gov]



                 INTERNET TAX MORATORIUM AND EQUITY ACT

  Mr. GRAHAM. Mr. President, it is an unfortunate irony that the 
important things in life are often left unsaid. It may surprise some to 
know that, of all things, congressional legislation cannot escape this 
truism.
  In fact, the most important piece of education legislation Congress 
considers this year will not mention schools or students. The most 
important law enforcement legislation we consider this year will not 
recognize the officers that safeguard our streets. And, the most 
important piece of emergency services legislation we address this year 
will not reference the firefighters and paramedics who keep our 
communities safe.
  In 1998, Congress passed the Internet Tax Freedom Act. That bill 
imposed a three year moratorium on specific State taxes applicable to 
the Internet. The legislation didn't affect the States' ability to 
impose sales tax on Internet purchases, nor did it fix the unfair 
advantage ``e-tailers'' currently have over their main street 
competitors with respect to their responsibility to collect sales and 
use taxes.
  As a result of two Supreme Court rulings, a State is prohibited from 
requiring out-of-State retailers from collecting sales tax on purchases 
made by its residents if the business has no presence in the State. The 
sales tax still applies, it just has to be collected directly from the 
purchaser. For a variety of reasons, very little of this tax is ever 
collected.
  The Internet Tax Freedom Act created the Advisory Commission on 
Electronic Commerce which was supposed to come up with a solution to 
this problem. Instead the Commission was hijacked by a small group who 
opted to demagogue this issue to further their ``anti-tax'' agenda. The 
result was a year-long study of an issue with little in the form of 
useful recommendations.
  The game plan of the forces supporting the status quo is clear: 
delay, delay, delay. Keep extending the moratorium until there is a 
sufficiently large political constituency to permanently block the 
collection of sales taxes on purchases made over the Internet.
  This is not a hidden agenda. Governor Gilmore, Chairman of the 
Advisory Commission on Electronic Commerce stated it clearly when he 
said that ``I believe America should ban sales and use taxes on the 
Internet permanently, for all time. If we secure tax freedom on the 
Internet through 2006, tax freedom on the Internet will become an 
entitlement for the American

[[Page 3392]]

people and a political inevitability. No tax collector will be welcome 
on the Internet after 2006.''
  Let me be clear: this is not about whether purchases made over the 
Internet are subject to sales tax. They already are. The question is 
whether Internet sellers should have the same responsibility to collect 
the sales tax as their Main Street competitors.
  If we answer this question with a ``no,'' funding for education, law 
enforcement and emergency services will suffer. Why? Because States 
have the fundamental responsibility of financing public education in 
our country. Patrolling our streets, safeguarding the health and safety 
of our citizens--these tasks could not be accomplished without our 
State and local governments.
  For most States, sales tax revenue is the primary means by which 
States fulfill these responsibilities. Because many States rely on 
sales taxes for their general revenue, the equation is simple--no 
collection of sales tax on the Internet means less money for new 
schools, police officers, and rapid response equipment. Six States--
Florida, Nevada, South Dakota, Tennessee, Texas and Washington rely on 
sales taxes for more than half of their total tax revenue.
  According to the General Accounting Office, by 2003 losses to State 
and local government revenues from uncollected sales taxes on Internet 
sales could climb as high as $12.5 billion. Florida's share of that 
lost revenue could be as much as $1 billion. When asked why he robbed 
banks, Willie Sutton replied, ``that's where the money is.'' Today, the 
money is increasingly on the Internet.
  There is another reason to fix this issue: fairness. No one would 
seriously consider a proposal that barred State and local governments 
from collecting sales and use taxes from retailers who operate in green 
buildings. That would be unfair to those businesses that aren't located 
in green buildings. Yet that is fundamentally what proponents of the 
status quo argue for Internet retailers.
  Our position should be clear: no more delays. No more moratoriums 
until Congress agrees to a process whereby States are directed to 
simplify their sales tax systems in exchange for the authority they 
need to require remote sellers to collect their sales taxes.
  The legislation introduced last Friday takes the first positive step 
in this direction. That bill extends the current moratorium on Internet 
access taxes and multiple or discriminatory taxes on the Internet, a 
prohibition that virtually all agree should be imposed.
  More importantly, however, it establishes a process whereby States 
can cooperatively unify and simplify their sales and use tax systems. 
Sales tax laws must be made significantly more uniform across the 
states and the administration of the tax must be substantially 
overhauled and simplified. The goal of this legislation is to develop a 
simple, uniform and fair system of sales tax collection. It will reduce 
the burden on remote sellers while protecting State and local 
sovereignty.
  Once States have adopted this simplified system, they would then have 
the authority to require remote sellers to collect and remit sales and 
use taxes to the State.
  Previous attempts to require remote sellers to collect sales and use 
taxes have been criticized on the grounds that it was unreasonable to 
require businesses to keep track of the nearly 7,500 separate 
jurisdictions levying sales and use taxes. This bill addresses that 
criticism by requiring the states to dramatically simplify their sales 
and use tax systems by establishing uniform definitions and fewer 
rates.
  The streamlined sales and use tax system envisioned by this 
legislation follows the guidance offered by the Advisory Commission on 
Electronic Commerce. The attributes of this streamlined system include: 
a centralized, one-stop, multi-state registration system for sellers; 
uniform definitions for goods or services that would be included in the 
tax base; uniform and simple rules for attributing transactions to 
particular taxing jurisdictions; uniform rules for the designation of 
and identification of purchasers exempt from tax; uniform certification 
procedures for software that sellers may rely on to determine State and 
local taxes; uniform returns and remittance forms; consistent 
electronic filing and remittance methods; State administration of State 
and local sales taxes; uniform audit procedures; reasonable 
compensation for tax collection by remote sellers; exemption for remote 
sellers with less than $5 million in annual sales for the previous 
year; appropriate protections for consumer privacy; and such other 
features that a member states deem warranted to promote simplicity.
  Critics of this legislation argue that it is anti-technology, and 
that the Internet must be protected from this threat. That is not true. 
The sponsors of this bill yield to no one in their support and 
enthusiasm for a vibrant information technology industry. But that 
support does not necessitate special breaks for companies doing 
business over the Internet.
  This legislation is more appropriately characterized with one word: 
fairness. It promotes fair treatment for all retailers. In addition it 
protects States' abilities to collect the resources necessary to make 
the education investments that will pave the way for the next 
technological breakthrough--the next Internet. I hope my colleagues 
will join the sponsors of this bill and support this approach.

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