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[House Report 106-609]
[From the U.S. Government Publishing Office]

106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-609

======================================================================

 
                 INTERNET NONDISCRIMINATION ACT OF 2000

                                _______
                                

  May 8, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Gekas, from the Committee on Judiciary, submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 3709]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 3709) to make permanent the moratorium enacted by 
the Internet Tax Freedom Act as it applies to new, multiple, 
and discriminatory taxes on the Internet, having considered the 
same, reports favorably thereon with amendments and recommends 
that the bill as amended do pass.

                           TABLE OF CONTENTS

                                                                  

                                                                 Page
The Amendment..............................................           2
Purpose and Summary........................................           2
Background and Need for the Legislation....................           2
Hearings...................................................           6
Committee Consideration....................................           6
Votes of the Committee.....................................           6
Committee Oversight Findings...............................           9
Committee on Government Reform Findings....................           9
New Budget Authority and Tax Expenditures..................           9
Congressional Budget Office Cost Estimate..................           9
Constitutional Authority Statement.........................          11
Section-by-Section Analysis and Discussion.................          12
Changes in Existing Law Made by the Bill, as Reported......          12
Minority Views.............................................          14

    The amendments are as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Internet Nondiscrimination Act of 
2000''.

SEC. 2. 5-YEAR EXTENSION OF MORATORIUM ON STATE AND LOCAL TAXES ON THE 
                    INTERNET.

    (a) Extension of Moratorium.--Section 1101 of title XI of division 
C of Public Law 105-277 (112 Stat. 2681-719; 47 U.S.C. 151 note) is 
amended--
            (1) in subsection (a)--
                    (A) by striking ``3 years after the date of the 
                enactment of this Act'' and inserting ``October 21, 
                2006'', and
                    (B) in paragraph (1) by striking ``, unless'' and 
                all that follows through ``1998'',
            (2) by striking subsection (d), and
            (3) by redesignating subsections (e) and (f) as subsections 
        (d) and (e), respectively.
    (b) Technical Amendment.--Section 1104(10) of title XI of division 
C of Public Law 105-277 (112 Stat. 2681-719; 47 U.S.C. 151 note) is 
amended by striking ``unless'' and all that follows through ``1998''.

SEC. 3. APPLICATION OF AMENDMENTS.

    The amendments made by this Act shall not apply with respect to 
conduct occurring before the date of the enactment of this Act.

    Amend the title so as to read:

      A bill to extend for 5 years the moratorium enacted by 
the Internet Tax Freedom Act; and for other purposes.

                          Purpose and Summary

    The Internet Nondiscrimination Act, H.R. 3709, extends for 
an additional 5 years the moratorium on internet access taxes 
and multiple and discriminatory taxes on electronic commerce 
imposed by the Internet Tax Freedom Act. It also eliminates the 
current exception to the moratorium on internet access taxes 
for selected States which had such taxes in place at the time 
of the enactment of that act.

                Background and Need for the Legislation

    The Internet Tax Freedom Act, P.L. 105-277, created an 
Advisory Commission on Electronic Commerce for the purpose of 
conducting a thorough study of Federal, State and local, and 
international taxation of transactions using the internet and 
internet access. On April 12, 2000, the Commission submitted 
its report to Congress. While the Commission was able to make 
several formal findings and recommendations related to internet 
taxation \1\, it did not achieve the two-thirds vote \2\ 
necessary to do so on the core issues pertaining to State sales 
and use taxes. However, as a result of the Commission's work, 
two competing proposals have emerged which address how the tax 
system in the United States should be adjusted so that both 
electronic commerce and Government can fulfill the roles 
required of them in the new economy. It is clear that Congress 
will have to spend time studying these proposals and hearing 
from interested parties before determining how best to proceed 
on this core issue--whether and how State and local taxing 
authorities should be permitted to collect taxes on 
transactions occurring over the internet.
---------------------------------------------------------------------------
    \1\ The report contains three formal findings and recommendations. 
These relate to (1) the digital divide; (2) privacy implications of 
internet taxation; and (3) international taxes and tariffs. Report to 
Congress, Advisory Commission on Electronic Commerce, April 2000, 
(hereinafter, Report) at 4. The Report may be viewed in its entirely on 
the Commission's web site, www.ecommercecommission.org.
    \2\ The Internet Tax Freedom Act provides that ``No finding or 
recommendation shall be included in the report unless agreed to by at 
least two-thirds of the members of the Commission serving at the time 
the finding or recommendation is made.'' Section 1103, 47 U.S.C. 151 
note.
---------------------------------------------------------------------------
    Notwithstanding the Commission's inability formally to 
issue a recommendation on internet taxation policies, there is 
substantial unanimity that the current moratorium on taxes on 
internet access and multiple and discriminatory taxes on 
electronic commerce should be continued. The majority 
position,\3\ which was discussed at length in the Report, 
includes these two proposals:
---------------------------------------------------------------------------
    \3\ The majority proposal was agreed to by a vote of 11 yeas, 1 
nay, and 7 abstentions.

          Make permanent the current moratorium on any 
        transaction taxes on the sale of internet access, 
        including taxes that were grandfathered under the 
        Internet Tax Freedom Act.
          For a period of 5 years, extend the current 
        moratorium barring multiple and discriminatory taxation 
        of e-commerce and prohibit taxation of sales of 
        digitized goods and products and their non-digitized 
        counterparts;

Report at 19 and 23.
    The minority viewpoint similarly urges extension of the 
current moratorium:

          The temporary moratorium on transaction taxes on 
        Internet access charges established in the Internet Tax 
        Freedom Act (ITFA) should be extended.
          The temporary moratorium barring multiple and 
        discriminatory taxes on electronic commerce should be 
        extended for a period of time commensurate with the 
        implementation of sales tax simplification efforts 
        outlined below. Congress should then examine whether 
        these provisions of the ITFA should be continued.

A Proposal for a Streamlined, Fair Tax System, submitted to the 
Advisory Commission on Electronic Commerce by Commissioners 
Jones, Kirk, Leavitt, Lebrun and Loche at 4.
    In addition, the three administration representatives on 
the Commission (who were among those who abstained from voting 
on the majority proposal) wrote in their individual statement 
contained in the Report:

        1. No Internet Access Taxes
          The current statutory moratorium on Internet access 
        taxes should be made permanent.
          It is critically important to encourage access to the 
        Internet. Because taxes on Internet access would create 
        an obstacle to the access of all Americans to the 
        Internet, and in turn, their ability to participate in 
        electronic commerce these taxes should be prohibited 
        permanently.

        2. No Multiple and Discriminatory Taxes
          The current statutory moratorium on multiple and 
        discriminatory taxes should be extended.
          Multiple or discriminatory taxes on electronic 
        commerce plainly would hinder its development. The 
        existing statutory moratorium should be extended, and 
        final protections against such taxes should be crafted 
        after the States develop simplified sales tax systems.

Report at 58.

                         THE CURRENT MORATORIUM

    The 3-year moratorium enacted as part of the Internet Tax 
Freedom Act emerged from a debate that recognized the need to 
avoid stifling the potential for an innovative form of 
technology to provide information, goods, and services quickly 
and cheaply throughout the world. Congress also recognized, as 
did the Advisory Commission in its Report, that a major 
priority in addressing whether and how the internet should be 
subject to taxation should be reducing or removing barriers to 
access to perhaps the most advanced and useful medium of 
communications and commerce yet devised. These dual concerns 
led to two modest limitations on State and local taxation of 
the internet:
A. No State or political subdivision may impose a tax on internet 
        access, unless the tax was in place prior to enactment of the 
        statute.
    At the time the ITFA was passed, 12 States and the District 
of Columbia asserted that they levied sales taxes on internet 
access. Since the moratorium's enactment, several of these 
States have reversed their policies on taxing internet access 
charges.\4\ It is the committee's understanding that 10 States 
continue to impose internet access taxes pursuant to the 
grandfather clause:\5\
---------------------------------------------------------------------------
    \4\ In 1999, Iowa enacted a law specifically exempting internet 
access charges from tax. In May 1999, the South Carolina Department of 
Revenue formally indicated that it would not impose taxes on internet 
access charges for the duration of the moratorium.
    \5\ The validity of many of the taxes enumerated here are currently 
the subject of legal challenge. For example, America Online, one of the 
largest internet access service providers in the State of Tennessee, 
has challenged the constitutionality of the State requirement that AOL 
collect sales taxes on internet access provided to customers in the 
State. During the pendency of the litigation, AOL has not collected the 
disputed tax. The Tennessee Department of Revenue estimates that the 
amount of revenue in dispute in this case is in excess of $10 million 
annually.
---------------------------------------------------------------------------
    a. Connecticut--under the authority of Section 12-
407(2)(i)(A) of the General Statutes of Connecticut, the State 
imposes a sales and use tax on internet access charges. 
However, this tax is scheduled to be completely phased out by 
July 1, 2001.
    b. Montana--Title 15, chapter 53 of the Montana Code 
Annotated is a retail telecommunications excise tax which 
applies to retail sales of 2-way communications of voice, data 
or video, regardless of medium. This includes internet access 
services.
    c. New Hampshire--The New Hampshire Communications Services 
tax, Revised Statutes Annotated (RSA) chapter 82-A, is a 
telecommunications excise tax which covers 2-way 
telecommunications services offered by certain types of 
providers, notably cable television system operators. Thus, it 
will apply to internet access charges imposed by cable 
companies.
    d. New Mexico--under the authority of New Mexico Statutes 
Annotated 7-9-3, internet access charges are subject to gross 
receipts taxes.
    e. North Dakota--at the time of enactment of the Internet 
Tax Freedom Act, North Dakota had two taxes that applied to 
internet access charges--North Dakota Century Code 57-39.2 and 
57-34. One tax was a telecommunication gross receipts tax; the 
other is a sales and use tax. The Board of Equalization of the 
State had ruled initially that internet access charges were 
included within the definition of telecommunications gross 
receipts to which that tax applied. However, effective in July 
1999, the Board stopped enforcing the telecommunications tax on 
internet access, on the grounds that the legislative intent of 
the tax was unclear as to its scope. The sales and use tax 
continues to be applied to internet access charges.
    f. Ohio--Chapter 5739 of the Ohio Revised Code subjects the 
business use of internet access to a sales and use tax.
    g. South Dakota--South Dakota Codified Law Annotated 10-45-
5 imposes a sales and use tax on internet access charges.
    h. Tennessee--pursuant to Tennessee Code Annotated 67-6-
221, 67-6-102(23)(iii), and 67-6-702(g), the State imposes a 
sales and use tax on internet access charges.
    i. Texas--although under the Internet Tax Freedom Act the 
State would have been permitted to tax all internet access 
charges, it has chosen to exempt up to $25 per month of 
internet access fees from its sales and use tax. Texas Tax 
Code, chapter 151, section 151.325.
    j. Wisconsin--sales and use taxes are imposed on internet 
access charges pursuant to Section 77.52(2)(a)5 of the 
Wisconsin Statutes (1995-96).
    In addition, 16 cities in Colorado, including Wheat Ridge, 
Woodland Park, and Longmont, and the city of Tuscon, Arizona 
impose internet access taxes.
B. No State or political subdivision may impose a multiple or 
        discriminatory tax on electronic commerce.
    The Internet Tax Freedom Act defines electronic commerce as 
a transaction conducted over the internet or through internet 
access, comprising the sale, lease, license, offer or delivery 
of property, goods, services or information.
    A multiple tax is a tax by one State or political 
subdivision on the same, or essentially the same, electronic 
commerce which is also subject to another tax by another State 
without allowing a credit for taxes paid in other 
jurisdictions. The limitation on multiple taxes would not 
prevent a State and one or more political subdivision from 
taxing the same transaction, but it would prevent the 
transaction from being subject to tax by competing States or 
localities. Thus, for example, a purchase made in Virginia from 
a seller in Maryland could be taxed by the State of Virginia 
and the county of Arlington. It could not also be taxed by 
Maryland, however, unless the a credit for the tax paid in 
Virginia were available.
    A discriminatory tax is one that is imposed on a 
transaction occurring over the internet but not on non-internet 
transactions involving similar goods; one which taxes internet 
transactions at rates higher than similar non-internet 
transactions; one which imposes the tax collection obligation 
for an internet transaction on an entity different than one 
involving a non-internet transaction; or one which taxes 
information providers at a higher rate when the information is 
delivered over the internet.
    The definition of discriminatory tax also clarifies that 
certain types of contact with a taxing jurisdiction will be 
insufficient to establish ``nexus'' (the constitutionally 
required relationship between a taxing authority and the entity 
on which it seeks to impose a tax collection obligation). Under 
this provision, a taxing jurisdiction will not be able to 
require a seller to collect a tax on electronic commerce if:
    (a) the sole ability to access a site on a remote seller's 
out-of-state computer server is a factor in determining the 
remote seller's tax collection obligation; or
    (b) an internet service provider (ISP) is deemed to be the 
agent of a remote seller for determining tax collection 
obligations solely because of the display of a remote seller's 
information on the ISP's out-of-state computer server, or 
because it processes orders through an out-of-state computer 
server.
    The current moratorium does not place any other 
restrictions on a State or local taxing authority's ability to 
impose a sales or use tax on a transaction that takes place 
over the internet.

                   EFFECT OF H.R. 3709 ON CURRENT LAW

    As introduced, H.R. 3709 would have simply made permanent 
the current moratorium. The committee adopted an amendment in 
the nature of a substitute, offered by Mr. Goodlatte and Mr. 
Boucher, which instead extended its length by 5 years. If the 
bill is enacted, the moratorium will expire on October 21, 
2006. The substitute amendment adopted by the committee also 
eliminates the grandfather clause which permits the collection 
of internet access taxes enumerated above.

                                Hearings

    No hearings were held on H.R. 3709. However, in the 105th 
Congress, the committee's Subcommittee on Commercial and 
Administrative Law held a hearing on H.R. 1054, the ``Internet 
Tax Freedom Act,'' which included a provision creating the 
moratorium which is the subject of H.R. 3709.

                        Committee Consideration

    On May 4, 2000, the committee met in open session and 
ordered favorably reported the bill H.R. 3709 with amendment by 
a recorded vote of 29 to 8, a quorum being present.

                         Votes of the Committee

    There were three rollcall votes during committee 
deliberations on H.R. 3709. In addition, an amendment in the 
nature of a substitute by Mr. Goodlatte and Mr. Boucher which 
would extend the moratorium for 5 years and eliminate the 
grandfather clause was adopted by voice vote. The rollcall 
votes were as follows:

    An amendment by Mr. Chabot to the Goodlatte/Boucher 
amendment in the nature of a substitute which would make the 
moratorium permanent and eliminate the grandfather clause. The 
amendment was defeated by a rollcall vote of 10 to 23.

                                                   ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner...............................................              X   ..............  ..............
Mr. McCollum....................................................              X   ..............  ..............
Mr. Gekas.......................................................              X   ..............  ..............
Mr. Coble.......................................................  ..............              X   ..............
Mr. Smith (TX)..................................................  ..............  ..............  ..............
Mr. Gallegly....................................................              X   ..............  ..............
Mr. Canady......................................................  ..............              X   ..............
Mr. Goodlatte...................................................  ..............              X   ..............
Mr. Chabot......................................................              X   ..............  ..............
Mr. Barr........................................................              X   ..............  ..............
Mr. Jenkins.....................................................  ..............              X   ..............
Mr. Hutchinson..................................................  ..............              X   ..............
Mr. Pease.......................................................              X   ..............  ..............
Mr. Cannon......................................................  ..............  ..............  ..............
Mr. Rogan.......................................................              X   ..............  ..............
Mr. Graham......................................................              X   ..............  ..............
Ms. Bono........................................................              X   ..............  ..............
Mr. Bachus......................................................  ..............              X   ..............
Mr. Scarborough.................................................  ..............  ..............  ..............
Mr. Vitter......................................................  ..............              X   ..............
Mr. Conyers.....................................................  ..............              X   ..............
Mr. Frank.......................................................  ..............              X   ..............
Mr. Berman......................................................  ..............              X   ..............
Mr. Boucher.....................................................  ..............              X   ..............
Mr. Nadler......................................................  ..............              X   ..............
Mr. Scott.......................................................  ..............              X   ..............
Mr. Watt........................................................  ..............              X   ..............
Ms. Lofgren.....................................................  ..............              X   ..............
Ms. Jackson Lee.................................................  ..............              X   ..............
Ms. Waters......................................................  ..............              X   ..............
Mr. Meehan......................................................  ..............              X   ..............
Mr. Delahunt....................................................  ..............              X   ..............
Mr. Wexler......................................................  ..............  ..............  ..............
Mr. Rothman.....................................................  ..............              X   ..............
Ms. Baldwin.....................................................  ..............              X   ..............
Mr. Weiner......................................................  ..............              X   ..............
Mr. Hyde, Chairman..............................................  ..............              X   ..............
                                                                 -----------------------------------------------
    Total.......................................................             10              23   ..............
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Delahunt to the Goodlatte/Boucher 
amendment in the nature of a substitute which would have 
extended the current moratorium for 3 years from the date of 
enactment, and which would have continued the grandfather 
clause. The amendment was defeated by a rollcall vote of 15 to 
22.

                                                   ROLLCALL NO. 2
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner...............................................  ..............              X   ..............
Mr. McCollum....................................................  ..............              X   ..............
Mr. Gekas.......................................................  ..............              X   ..............
Mr. Coble.......................................................              X   ..............  ..............
Mr. Smith (TX)..................................................  ..............              X   ..............
Mr. Gallegly....................................................  ..............              X   ..............
Mr. Canady......................................................  ..............              X   ..............
Mr. Goodlatte...................................................  ..............              X   ..............
Mr. Chabot......................................................  ..............              X   ..............
Mr. Barr........................................................  ..............              X   ..............
Mr. Jenkins.....................................................              X   ..............  ..............
Mr. Hutchinson..................................................  ..............              X   ..............
Mr. Pease.......................................................  ..............              X   ..............
Mr. Cannon......................................................  ..............              X   ..............
Mr. Rogan.......................................................  ..............              X   ..............
Mr. Graham......................................................  ..............              X   ..............
Ms. Bono........................................................  ..............              X   ..............
Mr. Bachus......................................................  ..............              X   ..............
Mr. Scarborough.................................................  ..............              X   ..............
Mr. Vitter......................................................  ..............              X   ..............
Mr. Conyers.....................................................              X   ..............  ..............
Mr. Frank.......................................................              X   ..............  ..............
Mr. Berman......................................................              X   ..............  ..............
Mr. Boucher.....................................................  ..............              X   ..............
Mr. Nadler......................................................              X   ..............  ..............
Mr. Scott.......................................................              X   ..............  ..............
Mr. Watt........................................................              X   ..............  ..............
Ms. Lofgren.....................................................  ..............              X   ..............
Ms. Jackson Lee.................................................              X   ..............  ..............
Ms. Waters......................................................              X   ..............  ..............
Mr. Meehan......................................................  ..............              X   ..............
Mr. Delahunt....................................................              X   ..............  ..............
Mr. Wexler......................................................              X   ..............  ..............
Mr. Rothman.....................................................              X   ..............  ..............
Ms. Baldwin.....................................................              X   ..............  ..............
Mr. Weiner......................................................              X   ..............  ..............
Mr. Hyde, Chairman..............................................  ..............              X   ..............
                                                                 -----------------------------------------------
    Total.......................................................             15              22   ..............
----------------------------------------------------------------------------------------------------------------

    Motion to report H.R. 3709 as amended by the amendment in 
the nature of a substitute. By a rollcall vote of 29 to 8, the 
motion to report favorably was agreed to.

                                                   ROLLCALL NO. 3
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner...............................................              X   ..............  ..............
Mr. McCollum....................................................              X   ..............  ..............
Mr. Gekas.......................................................              X   ..............  ..............
Mr. Coble.......................................................              X   ..............  ..............
Mr. Smith (TX)..................................................              X   ..............  ..............
Mr. Gallegly....................................................              X   ..............  ..............
Mr. Canady......................................................              X   ..............  ..............
Mr. Goodlatte...................................................              X   ..............  ..............
Mr. Chabot......................................................              X   ..............  ..............
Mr. Barr........................................................              X   ..............  ..............
Mr. Jenkins.....................................................  ..............              X   ..............
Mr. Hutchinson..................................................              X   ..............  ..............
Mr. Pease.......................................................              X   ..............  ..............
Mr. Cannon......................................................              X   ..............  ..............
Mr. Rogan.......................................................              X   ..............  ..............
Mr. Graham......................................................              X   ..............  ..............
Ms. Bono........................................................              X   ..............  ..............
Mr. Bachus......................................................              X   ..............  ..............
Mr. Scarborough.................................................              X   ..............  ..............
Mr. Vitter......................................................              X   ..............  ..............
Mr. Conyers.....................................................  ..............              X   ..............
Mr. Frank.......................................................  ..............              X   ..............
Mr. Berman......................................................              X   ..............  ..............
Mr. Boucher.....................................................              X   ..............  ..............
Mr. Nadler......................................................              X   ..............  ..............
Mr. Scott.......................................................  ..............              X   ..............
Mr. Watt........................................................  ..............              X   ..............
Ms. Lofgren.....................................................              X   ..............  ..............
Ms. Jackson Lee.................................................  ..............              X   ..............
Ms. Waters......................................................              X   ..............  ..............
Mr. Meehan......................................................              X   ..............  ..............
Mr. Delahunt....................................................  ..............              X   ..............
Mr. Wexler......................................................              X   ..............  ..............
Mr. Rothman.....................................................              X   ..............  ..............
Ms. Baldwin.....................................................  ..............              X   ..............
Mr. Weiner......................................................              X   ..............  ..............
Mr. Hyde, Chairman..............................................              X   ..............  ..............
                                                                 -----------------------------------------------
    Total.......................................................             29               8   ..............
----------------------------------------------------------------------------------------------------------------

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the committee reports that the 
findings and recommendations of the committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                Committee on Government Reform Findings

    No findings or recommendations of the Committee on 
Government Reform were received as referred to in clause 
3(c)(4) of rule XIII of the Rules of the House of 
Representatives.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the committee sets forth, with 
respect to the bill, H.R. 3709, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 8, 2000.
Hon. Henry J. Hyde, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed federal cost estimate and mandates 
statement for H.R. 3709, the Internet Nondiscrimination Act of 
2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark Hadley 
(for federal costs), who can be reached at 226-2860, and 
Shelley Finlayson (for the state and local impact), who can be 
reached at 225-3220.
            Sincerely,
                                  Dan L. Crippen, Director.

Enclosure

cc:
        Honorable John Conyers Jr.,
        Ranking Democratic Member.
H.R. 3709--Internet Nondiscrimination Act of 2000.
    CBO estimates that enacting H.R. 3709 would have no impact 
on the federal budget. Because the bill would not affect direct 
spending or receipts, pay-as-you-go procedures would not apply. 
The bill's impact on state, local, and tribal governments, and 
on the private sector are discussed in a separate mandates 
statement.
    H.R. 3709 would extend a moratorium on certain state and 
local taxation of on-line services and electronic commerce 
through October 21, 2006. Under current law, the moratorium is 
set to expire on October 21, 2001. The bill also would expand 
the moratorium to include certain taxes that were imposed and 
generally enforced prior to October 1, 1998. Under current law, 
such taxes are exempt from the moratorium.
    The CBO staff contact is Mark Hadley, who can be reached at 
226-2860. This estimate was approved by Peter H. Fontaine, 
Deputy Assistant Director for Budget Analysis.

                                SUMMARY

    H.R. 3709 contains no private-sector mandates, but by 
extending and expanding the moratorium on certain types of 
state and local taxes, the bill would impose an 
intergovernmental mandate as defined in the Unfunded Mandates 
Reform Act (UMRA). CBO estimates that the costs of complying 
with this mandate would exceed the threshold established in the 
act ($55 million in 2000, adjusted annually for inflation) at 
some point over the next five years.

            INTERGOVERNMENTAL MANDATES CONTAINED IN THE BILL

    H.R. 3709 would extend for five additional years a 
moratorium on certain state and local taxes that was imposed by 
the Internet Tax Freedom Act (ITFA). In addition, the bill 
would remove the grandfather provision of ITFA that allowed 
some states to continue taxing Internet access. This extension 
and expansion of the moratorium would constitute an 
intergovernmental mandate as defined in UMRA.

    ESTIMATED DIRECT COSTS OF MANDATES TO STATE, LOCAL, AND TRIBAL 
                              GOVERNMENTS

Is the Statutory Threshold Exceeded?
    Because at least one significant state revenue source--
taxes on internet access--would clearly be affected and others 
might be affected, CBO estimates that the extension and 
expansion of the moratorium would cause revenue losses that 
would exceed the annual statutory threshold at some point over 
the five-year period.
Total Direct Costs of Mandates
    UMRA defines the direct costs of an intergovernmental 
mandate as ``the aggregate estimated amounts that all state, 
local, and tribal governments . . . would be prohibited from 
raising in revenues in order to comply with the federal 
intergovernmental mandate.'' CBO estimates that revenue losses 
would result from the removal of the grandfather provision for 
states that, prior to the passage of IFTA, collected taxes on 
Internet access.
    Several states currently levy taxes on Internet access. 
Based on information provided by these states and industry 
sources, and using conservative assumptions about actual 
collections and the projected growth of the market for Internet 
access, CBO estimates that the repeal of the grandfather 
provision would result in revenue losses exceeding the 
threshold at some point over the next five years. It is 
possible that, in the absence of this legislation, some state 
and local governments would enact new taxes or decide to apply 
existing taxes to Internet access or on-line services during 
the next five years. It is also possible that some governments 
would repeal existing taxes or preclude their application to 
these services. Such changes would affect the ultimate cost of 
the mandate but are difficult to predict. Therefore, for the 
purposes of estimating the direct costs of the mandate in this 
bill, CBO considered only the revenues from taxes that are 
currently in place.
    In addition, by extending the current moratorium, the bill 
may affect the ability of state and local governments to 
collect certain other taxes. Significant and continuous change 
within the industry, as well as uncertainty about possible 
legal interpretations of those definitions, make it impossible 
for CBO to predict the likelihood or magnitude of such effects 
on state and local budgets.

                         ESTIMATE PREPARED BY:

Shelley Finlayson (225-3220)

                         ESTIMATE APPROVED BY:

Peter H. Fontaine
Deputy Assistant Director for Budget Analysis

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the committee finds the authority for 
this legislation in Article I, section 8, clause 3 of the 
Constitution.

               Section-by-Section Analysis and Discussion

Section 1. Short Title
    The act may be cited as the ``Internet Nondiscrimination 
Act of 2000.''
Section 2. Extension of Moratorium on State and local taxes on the 
        internet.
    Subsection (a) extends for 5 years the current moratorium 
on taxes on internet access and multiple or discriminatory 
taxes on electronic commerce found in section 1101 of 47 U.S.C. 
151 note, which is scheduled to expire on October 21, 2001. 
Under the act, the moratorium will remain in effect until 
October 21, 2006.
    Subsection (a)(1)(B) eliminates the current grandfathering 
of State and local taxes on internet access, which permits 
taxes generally imposed and actually enforced prior to October 
1, 1998 to be collected notwithstanding the moratorium. 
Consequently, the States which are currently taxing internet 
access will no longer be permitted to assess such a tax on 
internet access occurring on or after the date of enactment of 
the act.
    As a technical and conforming change, subsection (a)(2) 
strikes current section 1101(d) of the Internet Tax Freedom 
Act, which contains a definition of ``generally imposed and 
actually enforced.'' Because the exception to the moratorium 
which was governed by this term will not survive this act, the 
definition is no longer needed. Subsection (a)(3) merely 
redesignates subsections to adjust to the elimination of this 
definition.
    Subsection (b) completes the technical and conforming 
changes required to effect the elimination of the grandfather 
clause. It strikes from current section 1104(10) language 
defining ``Tax on Internet Access'' as a tax on internet access 
``unless such tax was generally imposed and actually enforced 
prior to October 1, 1998.''
Section 3. Application of Amendments
    The amendments to the Internet Tax Freedom Act contained in 
this legislation shall not apply with respect to conduct 
occurring before the date of its enactment. Thus, for example, 
a State which may currently impose a tax on internet access 
under the authority of the grandfather clause may continue to 
seek collection of such a tax after the date of enactment, 
provided the access upon which the tax is assessed was effected 
prior to enactment.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

                          PUBLIC LAW 105-277

           *       *       *       *       *       *       *

                      DIVISION C--OTHER MATTERS

           *       *       *       *       *       *       *

                 TITLE XI--MORATORIUM ON CERTAIN TAXES

SEC. 1100. SHORT TITLE.

      This title may be cited as the ``Internet Tax Freedom 
Act''.

SEC. 1101. MORATORIUM.

      (a) Moratorium.--No State or political subdivision 
thereof shall impose any of the following taxes during the 
period beginning on October 1, 1998, and ending [3 years after 
the date of the enactment of this Act] on or after October 1, 
2006--
            (1) taxes on Internet access[, unless such tax was 
        generally imposed and actually enforced prior to 
        October 1, 1998]; and
            (2) multiple or discriminatory taxes on electronic 
        commerce.

           *       *       *       *       *       *       *

      [(d) Definition of Generally Imposed and Actually 
Enforced.--For purposes of this section, a tax has been 
generally imposed and actually enforced prior to October 1, 
1998, if, before that date, the tax was authorized by statute 
and either--
            [(1) a provider of Internet access services had a 
        reasonable opportunity to know by virtue of a rule or 
        other public proclamation made by the appropriate 
        administrative agency of the State or political 
        subdivision thereof, that such agency has interpreted 
        and applied such tax to Internet access services; or
            [(2) a State or political subdivision thereof 
        generally collected such tax on charges for Internet 
        access.]
      [(e)] (d) Exception to Moratorium.--
            (1) * * *

           *       *       *       *       *       *       *

      [(f)] (e) Additional Exception to Moratorium.--
            (1) * * *

           *       *       *       *       *       *       *

SEC. 1104. DEFINITIONS.

      For the purposes of this title:
            (1) * * *

           *       *       *       *       *       *       *

            (10) Tax on internet access.--The term ``tax on 
        Internet access'' means a tax on Internet access, 
        including the enforcement or application of any new or 
        preexisting tax on the sale or use of Internet services 
        [unless such tax was generally imposed and actually 
        enforced prior to October 1, 1998].
                             Minority Views

    We offer these minority views because we are concerned that 
an extension of the moratorium on taxes through 2006 (as the 
committee-reported legislation provides) is so lengthy that 
Congress may never return to the far more important issue of 
State tax simplification and because the procedural context by 
which this legislation has been considered has been deeply 
flawed. Concerns with extending the moratorium through 2006 or 
even longer have been expressed by representatives of the 
Administration,\1\ and a number of important organizations, 
including the National Governors Association (in a letter 
signed by 36, including 22 Republican, Governors),\2\ numerous 
city, county and local governments, organized labor (including 
the AFL-CIO, NEA, AFT, AFSCME, and the International Union of 
Police) \3\ education groups,\4\ the National Retail Federation 
and a wide variety of individual retailers (such as Wal-Mart, 
Sears, Home Depot, K-Mart, Radio Shack, Target, and Circuit 
City),\5\ and shopping center owners.\6\ (Many of these 
entities have come together to form the e-Fairness Coalition, 
representing a total of more than 1.5 million retailers and 
other businesses.)
---------------------------------------------------------------------------
    \1\ See Advisory Commission on Electronic Commerce, Statement 
submitted by Commissioners Joseph Guttentag, Andrew Pincus, and Robert 
Novick.
    \2\ Letters from Governors to Senator Trent Lott, majority leader 
and Congressman Dennis Hastert, Speaker of the House (April 7, 2000; 
April 10, 2000; April 11, 2000; April 12, 2000) regarding urging the 
rejecting of the Advisory Commission on Electronic Commerce (ACEC).
    \3\ Letter from the AFL-CIO urging Representatives to vote against 
H.R. 3709. (AFL-CIO Letter). See also Letter from AFSCME, International 
Association of Fire Fighters, CWA, Dept. of Prof. Employees, AFL-CIO, 
and SEIU to Congressman John Conyers, Jr. (May 3, 2000) expressing 
concern regarding the proposed extension of the moratorium on Internet 
taxes (AFSCME Letter).
    \4\ Letter from Constantine W. Curris, President, American 
Association of State College and Universities (AASCU) to John McCain, 
Chair, Senate Committee on Commerce, Science and Transportation and 
Congressman Thomas J. Bliley, Jr. (April 7, 2000) urging Congress not 
to pursue measures such as a permanent Federal ban on e-commerce 
taxation (AASCU Letter).
    \5\ Letter from Lisa Cowell, Executive Director of E-fairness 
Coalition to Governor James Gilmore, Chairmen of the Advisory 
Commission on Electronic Commerce (March 16, 2000).
    \6\ Statement of Peter Lowy, Co-President of Westfield America, 
before the Subcommittee on Telecommunications Trade & Consumer 
Protection on May 3, 2000.
---------------------------------------------------------------------------
    Under current law,\7\ there is a limited moratorium on 
State and local Internet access taxes \8\ (subject to a 
grandfather on taxes of this nature imposed prior to 1998) \9\ 
as well as on so-called ``multiple and discriminatory taxes'' 
imposed on Internet transactions.\10\ The current moratorium is 
scheduled to expire on October 21, 2001 and was created as a 
interim device to allow a commission to study the problem of 
Internet taxes and the need for developing a ``level playing 
field'' for the collection of sales taxes by all forms of 
retailers. (This unlevel playing field results from the Supreme 
Court's 1992 decision in Quill v. Heitcamp,\11\ which held that 
absent congressional authorization, States are not permitted to 
require sellers to collect sales taxes unless, among other 
things, the seller has a ``substantial physical nexus'' within 
the State.) H.R. 3709, as reported by the committee, would 
extend the present moratorium for an additional five years--
from 2001 until 2006--and eliminate the grandfather of State 
taxes on Internet access already in place. A summary of our 
concerns follows.
---------------------------------------------------------------------------
    \7\ Internet Tax Freedom Act of 1998, 47 U.S.C. Sec. 151 note 
Sec. 1101.
    \8\ Contrary to the understanding of many, the 1998 law did not 
provide for any sort of general prohibition on Internet taxes by the 
States.
    \9\ At the time the Act was passed 12 States asserted that they 
levied sales taxes on Internet access. Presently, only 10 remaining 
States have taxes on Internet access charges: Connecticut, Montana, New 
Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington, 
and Wisconsin.
    \10\ A discriminatory tax is one that is imposed on a transaction 
occurring over the internet but not on no-internet transacation 
involving similar goods; one, which taxes internet transactions at 
rates higher than similar no-internet transactions; one which imposes 
the tax collection obligation for internet transaction on an entity 
different than one involving a non-intenet transaction; or one which 
taxes information providers at a higher rate when the information is 
delivered over the internet. The definition of discriminatory tax also 
clarifies that certain contact with a taxing jurisdiction will be 
insufficient to establish ``nexus'' (the constitutionally required 
relationship between a taxing authority and the entity on which it 
seeks to impose a tax collection obligation). A tax will be 
discriminatory if: (a) the sole ability to access a site on a remote 
seller's out-of-state computer server is a factor in determining the 
remote seller's tax collection obligation; or (b) an internet service 
provider (ISP) is deemed to be the agent of a remote seller for 
determining tax collection obligations solely because of the display of 
a remote seller's information on the ISP's out-of-state computer 
server.
    \11\ 504 US 298 (1992). Quill held that in order to sustain an 
interstate sales tax, the tax must apply to an activity with a 
substantial nexus with the taxing State; be fairly apportioned; not 
discriminate against interstate commerce; and be fairly related to the 
services provided by the State. In the events a good is sold across 
interstate lines without being subject to sales tax, the purchaser 
remains subject to a comparable ``use tax'' within their own State.
---------------------------------------------------------------------------
I. Extending the Moratorium Through 2006 Will Unduly, if Not 
        Indefinitely, Delay Revisiting the More Important Issue of 
        State Tax Simplification
    If Congress extends the present moratorium through 2006--
more than two presidential elections from today's date--there 
is a risk that we may never return to the more important issue 
of State tax simplification. This would undermine a principal 
purpose of the 1998 Internet Tax legislation which gave the 
Advisory Commission on Electronic Commerce the ability to 
consider how best to develop a more simple and rationale system 
than exists at present.\12\
---------------------------------------------------------------------------
    \12\ Internet Tax Freedom Act of 1998, 47 U.S.C. Sec. 151 note 
Sec. 1102(g)(1).
---------------------------------------------------------------------------
    Unfortunately, the Advisory Commission was unable to reach 
a consensus on this, or any other important issue. Thus, 
although we do not support multiple or discriminatory State 
taxes on the Internet, we are concerned that extending the 
present moratorium through 2006 would only serve to 
indefinitely delay work on the real problem--an overly complex 
system of more than 6,500 local and State sales tax 
jurisdictions, and the potential of current law under Quill to 
subject similarly situated sellers to different tax collection 
regimes. Indeed, there is a real risk that if we extend the 
moratorium until 2006, many interests will be come so dependent 
on the current system that it will be impossible to ever 
revisit the issue of State tax simplification. Tellingly, 
Governor Gilmore, who headed the Advisory Commission on 
Electronic Commerce, admitted that by the time a five year 
moratorium expired, consumers would not accept additional 
taxes, ``No tax collector will be welcome on the Internet after 
2006.'' \13\
---------------------------------------------------------------------------
    \13\ John Schwartz, Gilmore Denies E-Tax Reversal; Plan Could Allow 
Levies on Internet After Five Years, The Washington Post, Feb. 24, 
2000, at E03.
---------------------------------------------------------------------------
    As the International Council of Shopping Centers explained, 
``we are deeply concerned that the longer the moratorium is 
extended, the more difficult it will be for Congress [and the 
States] to address and take action.'' \14\ These same concerns 
have been echoed by the Vice President of Wal-Mart who warned, 
``I don't know anyone who believes it will be any easier to 
resolve the issue in five or six years. In fact, I can almost 
guarantee you that it will be nearly impossible, because absent 
a solution, most brick-and-mortar businesses that also sell on 
the Internet will have been forced to reorganize their 
corporate structure in order to remain price competitive. . . . 
Congress should not force businesses to alter their corporate 
structure simply to remain price competitive.'' \15\
---------------------------------------------------------------------------
    \14\ Statement of the International Council of Shopping Centers on 
The Taxation of Electronic Commerce to the U.S. Senate Committee on 
Commerce, Science and Transportation on April 12, 2000.
    \15\ Testimony of David Bullington, Vice-President of Taxes, Wal-
Mart Stores, Inc., before the Senate Commerce Committee, April 12, 
2000.
---------------------------------------------------------------------------
    This is why many of us believe it would be far preferable 
to extend the present moratorium until 2003. This amendment was 
offered by Rep. Delahunt, but rejected by the majority on a 
largely party line vote. It is our hope that by 2003 the States 
could build on the very serious steps they have already taken 
to reform and simplify their laws.\16\ Then, Congress could 
consider whether we should approve any interstate process that 
addresses the simplification issue. If the States were not 
making any progress by 2003, it would be a simple matter to 
extend the moratorium for an additional period of time.
---------------------------------------------------------------------------
    \16\ Ongoing simplification efforts by the States are proceeding. 
Most recently a March 30-31, 2000 meeting in Denver, Colorado focused 
on implementation of streamlined sales and use tax systems. See 
Statement of Governor Micheal Leavitt before the Senate Commerce 
Committee on April 12, 2000.
---------------------------------------------------------------------------
II. Failure to Revisit the State Tax Simplification Issue Will Harm 
        Retailers, State and Local Governments, and Individual 
        Consumers
    An undue delay, or total failure to revisit the issue of 
State tax simplification, will harm all interested parties--
retailers (both electronic and otherwise), State and local 
governments, and consumers. The problems with the present 
system from the perspective of the retail industry are several 
fold. First, the complexity of the system is daunting. There 
are presently over 6,500 taxing jurisdictions in the United 
States, when all State, county and municipal authorities are 
included. The jurisdictions generally require separate 
collection, have developed overlapping definitions of goods and 
services subject to tax, specify differing sets of exemptions 
and de minimis thresholds, have differing bad debt rules, and 
varying sets of forms and audit systems. Needless to say, any 
retailer with a physical nexus to a State is subject to a 
myriad of confusing and complex State and local taxes. This 
carries with it large paperwork and collection burdens.
    Second, the legal uncertainty of the present system can be 
harmful, even for remote sellers, because of the many questions 
left unresolved by the Quill decision and by current law. 
Determining the meaning of ``substantial physical nexus'' for a 
particular retailer can be highly subjective. For example, 
would the mere presence of a computer server in a particular 
State constitute a substantial physical presence for State tax 
purposes? If an electronic retailer developed its own 
distribution system, would that subject it to local taxes? 
Would a retailer's hiring employees or independent contractors 
to solicit sales or engage in advertising within a State 
constitute the necessary nexus? How are purely electronic sales 
of books, movies and sound recordings to be treated? Would the 
existence of a kiosk to place sales orders through the Internet 
or a physical return facility in a State constitute the type of 
physical nexus needed to establish sales tax collection 
authority? Would it matter whether these physical facilities 
were owned outright by the remote retailer or through a 
separate subsidiary? There are no clear answers to these 
questions under Quill--creating a large degree of uncertainty 
for all electronic sellers, and threatening to artificially 
constrain their business development plans. The Internet Tax 
Freedom Act enacted in 1998 also gives rise to legal 
uncertainty. For example, the meaning of ``discriminatory tax'' 
is not fully flushed out, and we are given no guidance on the 
manner in which the ban on access taxes would apply if Internet 
access was bundled with other services, such as cable and long 
distance. All of these issues could be addressed as part of a 
comprehensive tax simplification effort, yet this will be far 
less likely to occur if we extend the present system through 
2006.
    Third, the current disparate tax treatment as between 
traditional ``bricks and mortar'' retailers and remote sellers 
has the potential to cause continuing economic distortion.\17\ 
As the New York Times editorial board has written, ``[a]n 
elementary principle of taxation says that taxes should distort 
purchasing decisions as little as possible. It is not the role 
of a tax code to determine whether customers shop in stores, 
online, or by mail order.'' \18\ Similarly, preeminent 
economist Robert Samuelson has observed, ``[e]xempting items 
sold over the Internet [is] . . . a disguised subsidy that 
favors one business over another. . . . Ideally, the Internet 
ought to compete with traditional stores on an equal footing. 
People should buy online if e-commerce offers lower prices or 
greater convenience.'' \19\ Yet the present system, by creating 
a tax incentive to be located in a remote physical location, 
threatens to do exactly that.\20\ This in turn, has the 
potential to harm local employment and real estate values.
---------------------------------------------------------------------------
    \17\ In an industry such as retail sales, where a 1-2% profit 
margin may be standard, a 6-8% sales tax differential can offer a 
significant price advantage.
    \18\ New York Times, December 19, 1999.
    \19\ Robert J. Samuelson, Fair Play on the Net, Washington Post 
Online, March 1, 2000, at A17.
    \20\ Perversely, the present system also creates an incentive, in 
terms of State sales taxes, to be located outside of the United States 
as well.
---------------------------------------------------------------------------
    With regard to the impact on State and local governments, 
an undue maintenance of the current system carries with it the 
potential for significant financial loss. Sales taxes 
constitute the most important State and local revenue source, 
far greater than income and property taxes, with the Census 
Bureau estimating that 47.9% of State and local revenues come 
from sales taxes. With projections of online sales estimated to 
exceed $100-300 billion annually by 2002, State and local 
governments could lose as much as $20 billion in uncollected 
sales taxes under the present system.\21\ This is why the 
Washington Post warned that loss or significant erosion of 
sales tax would leave huge holes in State budgets.\22\ This, in 
turn, could have a grave impact on critical services such as 
police and safety, health, and most notably, education. A 
consortium of labor unions led by AFSCME, NEA, and AFT has 
written, ``the loss of revenue will significantly impair the 
ability of States and localities to meet demands for education 
funding'' particularly since ``States generally devote 35%-40% 
of their overall budget to education,'' \23\ and the American 
Association of State Colleges and Universities, warned that 
hasty congressional action in this area ``could destabilize 
State and local revenue systems, which in turn would have an 
immediate and adverse impact on public services such as higher 
education.'' \24\
---------------------------------------------------------------------------
    \21\ See Donald Bruce and William F. Fox, E-Commerce in Context of 
Declining State Sales Tax Basis, Center for Business and Economic 
Research (CBER), University of Tennessee, Knoxville, February 2000.
    \22\ The Internet Tax Game, The Washington Post, April 6, 2000.
    \23\ AFSCME Letter; AFL-CIO Letter.
    \24\ AASCU Letter.
---------------------------------------------------------------------------
    Finally, the present system could significantly harm 
individual consumers. This could obviously be the case if 
individuals faced increasing income and property taxes or 
declining services as a result of the loss of sales taxes from 
remote sales. A separate concern is the adverse impact of the 
present bifurcated system on poor and minorities. According to 
a recent Commerce Department study, wealthy individuals are 20 
times more likely to have Internet access, and Hispanics and 
African Americans are far less likely to have such access.\25\ 
This means that poor and minorities who only buy locally face a 
greater sales tax burden than their counterparts. As the AFL-
CIO warned, ``H.R. 3709 would . . . force poorer working 
families who do not have access to the Internet to bear a 
greater share of their State and local sales tax burdens by 
allowing affluent families with the ability to shop on the 
Internet to use this medium to avoid their sales tax 
obligations through October 2006.'' \26\
---------------------------------------------------------------------------
    \25\ Falling Through the Net II: New Data on the Digital Divide, 
National Telecommunications and Information Administration, National 
Telecommunications and Information Administration, July 1998 (http://
www.ntia.doc.gov/ntiahome/net2/falling.html).
    \26\ AFL-CIO Letter.
---------------------------------------------------------------------------
III. The Process by which H.R. 3709 Has Been Considered is Deeply 
        Flawed
    The process by which H.R. 3709 has been considered has been 
neither serious nor credible. There have been no Judiciary 
Committee hearings to obtain input from interested or affected 
parties. Our markup was scheduled on only one day's notice--the 
bare minimum required under House and committee rules. Yet we 
are now in a headlong rush to the House floor, which will 
likely necessitate several waivers of House rules. For example, 
the committee report will not have laid over the requisite 
three days, and we may not have received the required 
Congressional Budget Office Report, with its analysis of the 
legislation's impact on State and local revenues.
    The entire process appears to have been more the result of 
partisan political considerations than sound policy. Why else 
would the majority leader announce that the legislation is 
slated for floor consideration before the committee had heard 
from a single witness or even scheduled a subcommittee or Full 
Committee markup? The majority would appear to be using this 
legislation in a desperate effort to create the appearance of a 
serious high-technology agenda, even while H.R. 3709 postpones 
and defers consideration of the larger issues. It is indeed 
ironic that the majority could claim to be champions of a tax 
free Internet, at the same time that the Republican Chairman of 
the Ways & Means Committee is proposing a new 30% Federal tax 
on sales transactions, including all electronic sales 
consummated over the Internet.
Conclusion
    Interstate taxation is an important and complex issue. It 
affects the ability of States and localities to provide 
critical services, such as schools, police, and fire 
enforcement. It could also impact the growth and viability of e 
commerce as well as the competitiveness of traditional bricks 
and mortar retailers. The Judiciary Committee should take its 
time and get this issue right. At a minimum, we should hear 
from the affected parties. We are concerned that by extending 
the present moratorium through 2006, as the majority proposes, 
we will be delaying or permanently deferring the more important 
issue of State tax simplification to far into the future, and 
create a situation where there is little incentive for the 
States to simplify and reform their own laws. This benefits no 
one, and we would urge a more deliberative and thoughtful 
approach.

                                   John Conyers, Jr.
                                   Jerrold Nadler.
                                   Robert C. Scott.
                                   Melvin L. Watt.
                                   William D. Delahunt.
                                   Steven R. Rothman
                                   Tammy Baldwin.

                                  

```