STATEMENT ON THE INTERNET TAX FREEDOM ACT
Two years ago, Congressman Cox and I came together to try to lay out a policy for the Internet that would keep the Federal government's hands off this dynamic new technology. At that time, we joined forces to fight attempts to have the Federal Government regulate pornography on the Net. We wanted to allow the ingenuity of the private sector to provide the solutions. The case challenging the so-called Communications Decency Act is at the Supreme Court and we expect to win.
Today, we are renewing our bipartisan effort to flesh out another piece of the puzzle -- the hodge-podge of new state and local taxes on electronic commerce. Again, we believe governmental attempts -- this time by state and local authorities -- to tax the Net are misguided. New taxes on electronic commerce are potentially devastating to consumers, small businesses and anyone who wants to benefit from the global electronic marketplace.
In January, I visited with some folks at an Internet Cafe in Portland. One entrepreneur told me that although he wanted to, he wasn't going to use the Internet to market his product because he didn't want as many as 30,000 different pairs of hands reaching into his pockets to collect taxes. The crazy quilt of state and local taxes could do irreparable harm to the Internet, killing the goose that could lay billions of dollars in golden eggs.
Let's talk about what it is like for an entrepreneur who wants to use the Net to sell her products. Let's assume this is an honest entrepreneur. First, she must figure out if her home page is subject to a tax. She'll also have to figure out whether she needs to pay extra tax to her Internet Service Provider, and whether she's subject to a business license tax. Then, if she's lucky enough to find a brave customer who will buy something from her, she needs to know who is liable for collecting and paying the tax, if any. She'll need to know if she has to pay a tax on her server, which might be in another state. And all of this may vary, depending on where she's located, where the bank that will handle her billing is located, where her Internet Service Provider is located. And as new taxes are added, all this could change.
We are not talking about some hypothetical taxes, we're talking real taxes. Twenty states and the District of Columbia impose one or more taxes on electronic commerce. For instance, Connecticut taxes computer services that are also available in non-computerized form, but not those that are only available on computer. So, you're better off if you subscribe to a newspaper online that's not available at your corner newsstand. Connecticut also treats Internet Access Providers as if they really data processing services, like Lexus-Nexus. In Ohio, you are taxed if you transmit raw data, such as a real estate data base that shows prices and locations, but if you transmit data that includes analysis, like a real estate magazine predicting housing trends, you're exempt. South Carolina taxes e-mail services as if they were voice mail. In Washington, if an electronic commerce signal originates or terminates in the state, then it's subject to a network services tax, like a telephone call.
In many cases, the states and local governments are just dusting-off their old telecommunications tax laws and slapping them on the Internet, even though Internet Service Providers already pay telecommunications taxes for the privilege of using the phone lines. Businesses and consumers face more than 30,000 different taxing jurisdictions in this country alone. If we include Canada, you have to add another 10,000. Can you tell the difference between a Canadian home page and a U.S., home page? I can't. If there were ever a need to invoke the Interstate Commerce Clause of the Constitution, this is it.
That's what our Internet Tax Freedom Act does. The bill has three parts. First, it would impose an indefinite moratorium on subnational taxes on electronic commerce. Where States and local governments have already imposed taxes on electronic commerce, their taxes would be grand fathered to the extent that they are net income taxes, fairly apportioned business license taxes or where the tax is collected in an identical way for mail or telephone orders. This will assure uniformity and fairness, while targeting inequitable technology taxes.
Second, the bill would call upon the Administration to bring together State and local governments, consumers and businesses, and any others with a stake in the Internet and online commerce to develop policy recommendations on taxation of the Internet and use of the Internet to deliver products and services. The President would have two years in which to prepare policy recommendations on taxation of the Internet.
Third, the bill directs the Executive Branch to seek an international agreement making the Internet a duty-free zone. Just as we seek a rational policy on electronic commerce taxation here in the United States, our businesses cannot be expected to compete overseas if they faced more than 160 different foreign tariff policies covering global electronic commerce. Although about 75 percent of Web users live in North America, most electronic commerce is between companies, rather than companies and consumers. Forrester Research of Massachusetts predicts business-to-business commerce will soon be worth $67 billion a year.
With state and local taxing authorities chomping at the bit to milk the Internet cash cow and consumers and businesses increasingly wary of the thousands of tax collectors reaching into their pockets, the main goal of this legislation is to give everyone time to step back and take a deep breath. The introduction of this bill marks the beginning of a process, not the end. We want everyone to come together to try to figure out a rational Internet tax policy. This may mean no taxes at all, or it may mean tax equality for all transactions, no matter the technology. The point is, no one has answers to these questions now. Our bill will give everyone the incentive and the time to find these answers.
I would now like to mention some of the groups that support this bill:
the American Electronics Association, the Software Publishers Association, the Association of Online Professionals, the Committee on State Taxation, the Direct Marketing Association, the Business Software Alliance, the Information Industry Association, the U.S. Telephone Association, IBM, the California State Board of Taxation, the Massachusetts High Tech Council, CommerceNet, and the Silicon Valley Software Industry Coalition. Statement