[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. ____________________