[Congressional Record (Bound Edition), Volume 153 (2007), Part 19]
[House]
[Pages 27278-27283]
[From the U.S. 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) 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

[[Page 27279]]

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 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

[[Page 27280]]

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 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

[[Page 27281]]

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 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. Watt 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.

[[Page 27282]]


  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 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

[[Page 27283]]

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.
  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.

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