[Congressional Record (Bound Edition), Volume 153 (2007), Part 18]
[Extensions of Remarks]
[Pages 25949-25950]
[From the U.S. Government Publishing Office, www.gpo.gov]




  INTRODUCTION OF THE INTERNET TAX FREEDOM ACT AMENDMENTS ACT OF 2007

                                 ______
                                 

                         HON. JOHN CONYERS, JR.

                              of michigan

                    in the house of representatives

                      Thursday, September 27, 2007

  Mr. CONYERS. Madam Speaker, I rise today to introduce the Internet 
Tax Freedom Act Amendments Act of 2007. This bipartisan legislation 
will amend the Internet Tax Freedom Act (ITFA) to extend the moratorium 
on certain taxes relating to the Internet and to electronic commerce 
and to address growing concerns as innovation occurs.
  I am pleased to say that working together, we have come to an 
agreement on a definition of Internet access that is clear, precise, 
and on target. It says that Internet access is a service that enables a 
user to connect to the Internet. This definition would include 
incidental services like e-mail and would maintain a lot of the 
telecommunications language--even going so far as to clarify it--from 
the last extension of the moratorium in 2004. This definition would 
further make it explicit that just because a service uses the Internet 
does not mean that that service had become part of the moratorium.


                        length of the extension

  This Act would extend the moratorium for 4 years, to run until 
November 1, 2011. The 4-year extension will allow Congress to make any 
adjustments to the moratorium if necessary. It will also allow 
companies a sufficient amount of time to plan their investments, while 
also giving consumers tax free access to the Internet. Congress has 
made important adjustments on each previous occasion that we extended 
the moratorium, in 2001, and again in 2004.


                             grandfathering

  This Act would extend for 4 years, the grandfather provisions which 
have preserved those Internet access taxes that were imposed prior to 
1998. This is consistent with past extensions.
  This Act also phases out those states that claim to be grandfathered 
as a result of the Internet Tax Nondiscrimination Act of 2004. The 2004 
Act provided for an amended definition of Internet access and resulted 
in assertions and public rulings made by many states requiring the 
collection of tax on sales of telecommunications to an Internet service 
provider to provide Internet access. This is because those states have 
interpreted the 2004 definition of ``Internet access'' to broaden the 
scope of the 1998 grandfather clause to permit taxation on the sales of 
telecommunications to an Internet service provider to provide Internet 
access. This Act resolves this problem by allowing those states that 
have issued public rulings before July 1, 2007 that are inconsistent 
with the foregoing rules to be held harmless until November 1, 2007.


              gross receipts tax issues in certain states

  A small group of states have recently enacted taxes that apply to 
almost all large businesses in the state--including Internet access 
providers. The new gross receipts taxes in these states serve as 
general business taxes and either substitute for or supplement the 
corporate income tax currently in place in those states, whereas in all 
other states, corporate income taxes serve as the general business tax.
  The problem is that the originally enacted and further amended 
Internet Tax Freedom Act (ITFA) contains an explicit protection for 
corporate income taxes imposed on Internet access providers, but not 
for gross receipts taxes. Thus, these select states would suffer a 
disproportionate loss because while the other states with corporate 
profits taxes are explicitly allowed to impose them on profits that 
they gain by providing Internet access services, there is no similar 
protection in ITFA for the type of general business taxes that are 
levied by the select states, because they are being levied on gross 
revenues or receipts, and are not covered in ITFA.
  The result is that an Internet access provider could potentially 
decide not to pay the tax on its receipts attributable to providing 
Internet access service in those select states. Thus, if the provider 
companies decided to stop paying on its access service, the wording of 
ITFA suggests that a court would likely support their position that 
these gross receipts are not taxable--and the states would lose out on 
millions in revenues.
  This Act resolves this dilemma by creating an exemption for states 
that have enacted laws that would structure their gross receipts taxes 
in such a way as to be a substitute for state corporate income taxes 
that are not taxes on Internet access. To be exempt the state law must 
have been enacted between June 30, 2005 and November 1, 2007, and must 
impose such taxes on at least 80 percent of business enterprises 
engaged in business in the state without regard to (a) the form of 
organization; (b) business activity in which such enterprise is 
engaged; (c) minimum filing thresholds; or (d) whether such business 
actually incurs a filing and payment obligation.


                   definition of ``internet access''

  After close examination of the many concerns with the definition of 
``Internet access'' in current law, we have agreed on a precise 
definition of ``Internet access''. The proposed definition will 
accomplish the following:
  1. Prevent all tax-exempt content bundling by redefining Internet 
access as the service of providing a connection to the Internet, with 
closely-related Internet communications services such as e-mail and 
instant messaging;
  2. Amend the definition of ``telecommunications'' to include 
unregulated/non-utility telecommunications (such as cable service); and
  3. Remove the current exception for taxing Voice over Internet 
Protocol (VoIP), so that states and localities will be free to tax 
these services.
  I am hopeful that Congress can move quickly to enact this worthwhile 
and timely legislation.

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