Internet Growth and Freedom Act of 2003

Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 49) to permanently extend the moratorium enacted by the Internet Tax Freedom Act, and for other purposes, as amended.

Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks and include extraneous material on H.R. 49, the bill currently under consideration.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I rise in support of H.R. 49, the Internet Tax Nondiscrimination Act. Over the last several years, the Internet has revolutionized commerce, become an economic engine and is a major source of information for Americans in virtually every segment of the population. It has expanded consumer choices, enhanced competition and enabled individuals as well as brick and mortar retailers to participate in a national marketplace once reserved to a privileged few.

In 1998, Congress passed the Internet Tax Freedom Act to facilitate the commercial development of the Internet, and in 2001 this body voted to extend the moratorium through this year. This act prohibits States from imposing multiple and discriminatory taxes on electronic commerce and shields consumers from new Internet access taxes. However, it does not exempt Internet retailers from collecting and remitting sales taxes to the States.

Introduced by the gentleman from California (Mr. Cox), H.R. 49 makes permanent the ban on taxes that target the Internet for discriminatory treatment as well as all taxes on Internet access by States and localities. This sound policy reflects the experience and insights gained over the last 5 years and represents the position of a wide bipartisan cosponsorship.

The Subcommittee on Commercial and Administrative Law conducted a hearing on this bill in April. On July 16, the full Judiciary Committee reported the bill favorably by voice vote with one bipartisan amendment in the nature of a substitute offered by the subcommittee's ranking member, the gentleman from North Carolina, and

its chairman, the gentleman from Utah. This amendment ensures that the original intent of the law, to provide tax freedom for all forms of Internet access, is preserved. I commend the gentleman from Utah and the gentleman from North Carolina for their work to clarify in this amendment that tax freedom must be tech neutral.

If H.R. 49 is not passed, Internet commerce will be subject to State and local taxes in thousands of jurisdictions. Failure to make the moratorium permanent could result in the imposition of a complex web of taxes that would create uncertainty for the information technology industry, a sector of the economy which can ill afford further setbacks.

Further, we must encourage equal participation in the digital age by keeping Internet access as affordable as possible. A recent survey confirmed that poorer Americans and those in rural or urban areas are most likely to cite cost pressures as a major reason why they would not avail themselves of the resources found online. Taxes on Internet access would only deepen the digital divide between those who have access to the Internet and those who do not. This bill has had virtually unanimous support in the Committee on the Judiciary and it has more than 130 bipartisan cosponsors. It is supported by the administration and has garnered the endorsement of numerous IT businesses and organizations.

Last Congress, the House and Senate passed a temporary extension of the moratorium by voice vote. These limited protections expire November 1 of this year. It is now time to make the benefits created by the moratorium permanent. Doing so will vitalize the IT economy, assist consumers and stimulate equal access to the invaluable resource that is the Internet.

I urge my colleagues to support this bill.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I yield 4 minutes to the gentleman from Utah (Mr. Cannon), the chairman of the subcommittee.

Mr. Speaker, I yield 4 minutes to the gentleman from California (Mr. Cox), the author of the bill.

Mr. Speaker, I yield 3 minutes to the gentleman from Virginia (Mr. Goodlatte), the chairman of the Committee on Agriculture.

(Mr. GOODLATTE asked and was given permission to revise and extend his remarks.)

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I appreciate the support of the gentleman from Massachusetts (Mr. Delahunt) on this bill. Lest people only heard part of his statement, let me say very clearly that this legislation has nothing whatsoever to do with the issue of the assessment and collection of sales taxes on remote sellers. It only has to do with banning multiple and discriminatory taxes on Internet access. The sales tax issue will be dealt with another day and in the context of another bill.

Since the gentleman from Massachusetts has raised this, I would like to make the following observations:

First, most States that assess sales taxes also assess use taxes, so an in-state resident who purchases goods out of state and is exempt from the sales tax because the goods are shipped from one State to the other, the sales tax of the State where the seller is located, is still liable for a use tax in his or her State of residency.

There is a line on the Wisconsin State income tax form that asks how much in use taxes you have to pay to the State of Wisconsin. If you put down zero and you really owe taxes, you filed a false tax return. I am sure that is the case in practically every other State that has got a sales or a use tax.

So when we are dealing with this issue, we are dealing with the failure of States to adequately and efficiently enforce their own use tax law. I do not know why States have failed to do this. That is something that Governors and legislators and State taxation department officials ought to explain.

But I can see the two-step being put on the Congress, that if we pass what the gentleman from Massachusetts wants us to at a later date, then that becomes our sales tax increase of billions of dollars on the taxpayers of Massachusetts and Texas and North Carolina.

I have told my Governors, Republican and Democrat, that have talked to me about this, as I said, your laws are already on the books. Why do you want us to enforce your law through an act of Congress, when you have the means to enforce your law by yourselves as responsibilities of the State government?

I hope that when we debate this issue of how to tax remote sales, we do not forget that.

Mr. Speaker, I am happy to yield 2 minutes to the gentleman from Texas (Mr. Smith).

Mr. Speaker, I yield 1 minute to the gentleman from New Hampshire (Mr. Bass).

Mr. Speaker, I yield myself the balance of the time.

Mr. Speaker, in response to the gentleman from New Hampshire, the States have been on notice for 5 years that national policy disfavors taxing access to the Internet. While it is true that the grandfather clause is repealed by this bill, in the State of New Hampshire in 2002 $2\1/2\ million was collected through Internet access taxes. That is 13/100ths of 1 percent of the total revenues of the State of New Hampshire.

Obviously, getting rid of this multiple and discriminatory and regressive tax is something that should be a national policy.

I think the Internet is interstate commerce, not intrastate commerce. And, thus, I believe that the bill ought to be approved.

Mr. Speaker, I urge support for the bill and I yield back the balance of my time.

Mr. Speaker, I thank the gentleman for yielding me time, and I rise in support of H.R. 49 for the reasons that have been enumerated by the subcommittee Chair and the gentleman from Wisconsin (Mr. Sensenbrenner), the Chair of the full committee. I want to acknowledge the leadership of the gentleman from Wisconsin (Mr. Sensenbrenner), the Chair of the full committee.

I also want to express my appreciation to the subcommittee Chair, my good friend, the gentleman from Utah (Mr. Cannon), for his kind words and his sincere efforts to see that Congress gives full consideration to the issue of taxation of remote sales. I thank him for scheduling a hearing on this issue and look forward to working with him to see that it is a productive exercise. As the gentleman knows, I will be introducing legislation in the near future, together with the gentleman from Oklahoma (Mr. Istook) and the gentleman from Alabama (Mr. Bachus), which would authorize the States that have worked so hard to simplify their sales taxes to collect sales taxes on remote sales to in-state purchases.

As we all know, the States are confronting their worst budget crises since the Great Depression. A declining economy, spiralling Medicaid costs, and the erosion of their tax base have left them with a collective deficit of some $100 billion. Governors of both political parties face a difficult choice between unpopular tax increases and drastic cuts in Medicaid, education, public safety and other essential services, or all of the above.

I appreciate the concern of the sponsors of the bill, that without a continuation of the moratorium on Internet access taxes, some States might be tempted to help make up their shortfalls by enacting such taxes. At the same time, we should be as concerned about the fact that States are losing tens of billions of dollars each year because taxable transactions on which they rely for half their revenues are increasingly taking place over the Internet. Some are not concerned, such as one individual, Mr. Grover Norquist, who testified at a hearing in support of this bill, and said that he wants to ``shrink government until we can drown it in the bathtub.'' He stated, ``I hope a State goes bankrupt.''

Well, unless you agree with him, the money has to come from somewhere. Uncollected sales taxes on Internet purchases cost the States more than $16 billion in 2001. Unless there is a system in place that enables States and local governments to collect these taxes, their annual losses from online sales will grow to some $45 billion by 2006 and $66 billion by 2011, with total losses coming to nearly half a trillion dollars by that date.

What does this mean for individual States? Well, just to cite a few examples, my home State of Massachusetts lost $256 million in 2001, and its losses will climb to over $1 billion by 2011. Tennessee lost $450 million in 2001, and by 2011 its annual losses will grow to $1.8 billion. Florida, which relies on the sales tax for more than one-half of its annual revenues, lost $1.2 billion in 2001, with its losses estimated to quadruple to nearly $5 billion just 10 years from now. Texas lost $1.4 billion in 2001 and stands to lose $5.6 billion by 2011.

These losses are magnifying the fiscal problems of the States, which are already experiencing, because of increased costs and shrinking revenues, losses. Additionally, by failing to ensure sales tax equity and fairness between remote sellers and Main Street merchants, we are putting at risk the thousands of small businesses that sustain our economy and contribute so much to our neighborhoods and our communities.

As former Governor Engler of Michigan said the last time we considered this issue, ``It is time to close ranks, come together and stand up for Main Street America. Fairness requires that remote sellers collect and pay the same taxes that our friends and neighbors on Main Street have to collect and pay.''

So, Mr. Speaker, while I support the moratorium on Internet access taxes and I support H.R. 49, I think it is important that we get our priorities straight. The Quill decision, which prompted this particular proposal, prohibited a State from collecting sales taxes from out-of- state businesses that do not have a physical presence in that State. But the court said that Congress could authorize the States to collect these taxes once they have modified their taxing systems to alleviate the burdens placed on Internet commerce by multiple taxing jurisdictions.

The States have made substantial progress over the past year in developing a simplified, efficient, and technologically neutral system for the taxation of goods and services that can meet that test. Once a sufficient number of States have implemented the streamlined sales and tax agreement, Congress should move expeditiously to consider our legislation authorizing them to require remote sellers to collect and remit sales and use taxes on in-state sales. The States, I believe, are meeting their responsibilities, and hopefully we will meet ours.

Mr. Speaker, I thank the gentleman for yielding me this time. I would also like to thank the gentleman from North Carolina (Mr. Watt), the distinguished ranking member of the subcommittee, for his long hours and hard work on this issue. We appreciate that very much. Also, the gentleman from Massachusetts (Mr. Delahunt), who has been very clear and very helpful in setting up the issue of the Streamlined Sales Tax Project, and others who have worked on this bill who I will mention during my speech; but I also want to mention the gentleman from Virginia (Mr. Goodlatte), chairman of the Committee on Agriculture, who for years has worked on this issue.

Mr. Speaker, I rise in support of H.R. 49. I would like to thank the gentleman from Wisconsin (Mr. Sensenbrenner), chairman of this committee, the Committee on the Judiciary, and the gentleman from Michigan (Mr. Conyers) for their constant support of preventing taxation on Internet access. I also want to thank the gentleman from California (Mr. Cox) for championing this issue since he, together with Senator Wyden, first introduced this legislation.

I also wish to recognize the efforts of my friend from Virginia, Senator Allen, on companion legislation in the other body. I look forward to working with him and others to guide our product to the President's desk for signature.

This body has debated Internet tax moratorium bills several times since 1998. In the past, efforts were made to link these moratoria to consideration of whether Congress should adopt legislation authorizing States to compel the collection of sales taxes from remote vendors. This effort, known as the ``Streamlined Sales Tax Project,'' or SSTP, has made progress without Federal intervention. But as we know, before interstate compacts can become effective, the Constitution requires congressional approval.

I thank the gentleman from Massachusetts (Mr. Delahunt) for his attention to the SSTP and assure him of my cooperation in considering all facets of this effort. My subcommittee has scheduled a hearing on the project for October 1 in order to give Members an opportunity to examine this issue fully.

Mr. Speaker, I support H.R. 49. This bill would broaden access to the Internet, expand consumer choice, promote certainty in growth in the IT sector of our economy, and encourage deployment of broadband services at lower prices.

The bill puts to rest the ``grandfather'' clause and makes tax-free Internet access a national policy. As I stated during committee consideration of this bill, the amount of tax revenue that certain States collect as a result of the grandfather clause pales in comparison to the amounts of aid these States receive under President Bush's economic package. We established a consistent national policy of not taxing Internet access through this bill.

H.R. 49 was amended in the Committee on the Judiciary to ensure that the moratorium is equally applied to all forms of Internet access. The gentleman from North Carolina (Mr. Watt), my good friend, and I were alerted to the fact that since 1998, the ITFA tax protections were not being fairly applied by the States. In particular, some States have begun to tax DSL Internet access in plain circumvention of the intent of the ITFA.

I supported the gentleman from North Carolina (Mr. Watt) in an

amendment at the committee to achieve what we believe is a fair and sound policy; parity of tax treatment for all forms of Internet access. This bipartisan effort, led by the gentleman from North Carolina (Mr. Watt) and the gentleman from Michigan (Mr. Conyers), underscores the importance of the Internet to our economy. The result is a thoughtful and necessary clarification restoring the ITFA to its original intent. It strikes a careful balance between those who tax and those who are taxed.

I want to emphasize that telecommunications services not used to provide Internet access remain outside the moratorium and that voice services over traditional telephone lines, therefore, remain taxable. Not taxable are the DSL, cable, dial-up, or other Internet access technologies that may run over those lines.

This bill, cosponsored by more than 130 Members of this body, is endorsed by administration and supported by numerous technology companies and organizations. Mr. Speaker, this bill makes sense for an economy that, while improving, needs clarity of tax policy by encouraging investment in broadband.

Finally, I want to thank again the gentleman from Wisconsin (Chairman Sensenbrenner) for his consistent support as we move toward permanent tax freedom for Internet access. His work has been invaluable. I urge my colleagues to support H.R. 49 as amended.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I rise in support of H.R. 49, the Internet Tax Nondiscrimination Act. H.R. 49 would permanently extend the existing moratorium against taxes on Internet access by all State and local governments, including those that were previously grandfathered by the Internet Tax Freedom Act. Although this bill will necessarily result in the loss or potential loss of revenue to some States, it will promote the continued development, emergence and widespread access to the Internet and it will do so in a fair and technologically neutral manner.

During the full committee markup of H.R. 49, I, together with the chairman of the Subcommittee on Commercial and Administrative Law, the gentleman from Utah, offered an amendment to help clarify the meaning of Internet access and to put an end to the current confusion that has led to discriminatory and inconsistent State taxation on Internet access. The bill before us today incorporates that amendment and is the product of industry-wide and bipartisan negotiations. The principle I pursued in offering the amendment was simple. If we are to prohibit taxes on Internet access, we must do so regardless of how that access is provided. Otherwise, we would give a competitive advantage to those providers covered by the moratorium over those providers that remained subject to taxation. This would limit the choices of consumers and raise the costs of alternative means of accessing the Internet, such as DSL. By making the moratorium applicable to all Internet service providers, we have created a level playing field for the consumer. In the process, we have had no intention to otherwise undermine State and local telecommunications tax bases.

Indeed, I, along with the gentleman from Massachusetts (Mr. Delahunt) and other colleagues on the subcommittee, have insisted throughout that we remain mindful of the fiscal crisis currently confronting many of our States. Toward that end, Chairman Cannon has agreed to conduct hearings this month on the States' attempt to establish a unified tax system that would enable them to impose and collect sales taxes on transactions over the Internet in a manner that is fair and manageable. I commend Chairman Cannon for his commitment to those hearings and look forward to working toward a solution to the streamlining issue.

In closing, I believe that H.R. 49 ensures that the ban on Internet access taxes is neutral as to technology, speed and provider.

I believe that the bill will lower costs to the consumer, enhance competition, clarify for State and local governments the type of services subject to tax, and facilitate narrowing the digital divide that presently impedes access to the Internet in disadvantaged communities. I urge my colleagues to support H.R. 49.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I yield 2 minutes to the gentleman from Michigan (Mr. Conyers), ranking member of the full committee.

Mr. Speaker, I yield 2\1/2\ minutes to the gentlewoman from Texas (Ms. Jackson-Lee), a member of the Committee on the Judiciary.

(Ms. JACKSON-LEE of Texas asked and was given permission to revise and extend her remarks.)

Mr. Speaker, I yield such time as he may consume to the gentleman from Massachusetts (Mr. Delahunt).

Mr. Speaker, I yield 2\1/2\ minutes to the gentleman from Texas (Mr. Green).

Mr. Speaker, I also yield to the gentleman from New Hampshire (Mr. Bass) for 1 minute.

The SPEAKER pro tempore (Mr. Ose.) The gentleman from New Hampshire (Mr. Bass) is recognized for 2 minutes.

Mr. Speaker, I have no further requests for time, and I yield back the balance of my time.

Mr. Speaker, I thank the Chairman for yielding me this time. I thank the gentleman from Michigan (Mr. Conyers). I thank the gentleman from Utah (Chairman Cannon) and the gentleman from North Carolina (Mr. Watt), ranking member.

This is an extraordinary moment because the Internet Tax Freedom Act, which was originally enacted 5 years ago, was something of an experiment. We debated it aggressively in both Chambers. We were not sure whether it was going to work as intended. It clearly has. And so having extended it twice, we are now back here to make it permanent. The benefits to our economy are manifest. It is estimated that the expansion of the Internet, the anticipated continued rollout of broadband and perhaps the next generation of broadband will add as much as $500 billion in gross domestic product every year in each of the next 10 years for our country. This is an extraordinary potential.

The University of California at Los Angeles, UCLA, in a January, 2003, survey has found that for consumers in the 21st century, right now the Internet is the most important source of information, but not everybody can afford it. Not everybody yet has the Internet. It is still expensive. There is about a $10 difference, perhaps more or less in some areas, between dial-up and broadband, and people have not been converting from dial-up to broadband, in part, because of that price point. It is just a little bit too expensive for a lot of people. Adding new taxes to Internet access, taxing e-mails, taxing the bits transmitted or the bandwidth would be a profoundly bad idea for our country. And as the gentleman from Michigan (Mr. Conyers) mentioned, there is such a potential for multiple taxes from many jurisdictions, all claiming that because there is a server located in their jurisdiction, they can tax a piece of this, that even a nick here and a little bit of nickels and dimes there would add up to a very serious amount of taxation for most people, and it would destroy what the Internet can become.

We are now going to put this behind us. We are going to move on. We are going to find that this becomes one of the invisible parts of the legal infrastructure that makes our economy great. It is going to help consumers. It is going to help technological innovation. It is going to help our economy and our country. And having worked for so long with Senator Wyden on this, I want to thank him, Senator Allen, Senator McCain as well. In this Chamber, though, there has been such leadership from the Committee on the Judiciary, from the gentleman from Wisconsin (Chairman Sensenbrenner), from the gentleman from Utah (Chairman Cannon), from the ranking members of the full committee and the subcommittee, as I mentioned, the gentleman from North Carolina (Mr. Watt) and the gentleman from Michigan (Mr. Conyers), and from the gentleman from Virginia (Mr. Goodlatte), whom I think we will hear from next that, I can safely say without that kind of leadership in this House, the American people would not be seeing this victory today.