Story: Senate Debates and Delays Internet Tax Freedom Act, 10/2/98.

(October 3, 1998) The U.S. Senate debated S 442, the "Internet Tax Freedom Act," on Friday, October 2, but postponed further consideration until Tuesday, October 6. The House passed its version of the bill on June 23. The bill would impose a temporary moratorium on new discriminatory taxes on the Internet. While Senators debated and then rejected an amendment offered by Sen. Bumpers, they also negotiated behind closed doors over the scope of the study mandated by the bill, as well as amendments unrelated to the bill.

The debate began at 9:30 Friday morning, with the bill's sponsor, Sen. Ron Wyden (D-OR), and Sen. John McCain (R-AZ) speaking in favor. The Senate first debated and voted on Amendment 3677 offered by Sen. Dale Bumpers (D-AR). Sen. Bumpers' amendment would require that mail order and Internet companies collect state and local taxes on the merchandise they sell to out of state purchasers. The amendment was tabled (i.e., failed) on a roll call vote of 66-29.

Meanwhile, there were closed door negotiations under way over the scope of the study mandated by the bill to be conducted during the period of the moratorium, and various amendments to the bill. The bill would establish an advisory commission to study Internet taxation. The debate, in part, was over whether the commission should also study and report on mail order catalogue sales.

By early afternoon, it was apparent that no substantive roll call votes would be held, and Senators began heading back to their districts -- many for election campaign activities.

As a result of the negotiations, two amendments to the bill were quickly introduced and approved by a "voice vote." Sen. McCain, a floor manager of the bill, introduced Amendment 3678 (Sen. Abraham's "digital signatures bill"), and Amendment 3679 (Sen. Bryan's "Children's Online Privacy Protection Act").

Sen. Spencer Abraham's (R-MI) bill, the "Government Paperwork Elimination Act" would set authentication standards for electronic communications, and require that the federal government accept certain forms in electronic format. The bill would give legal standing to the use of digital signatures, and further electronic commerce. Sen. Bryan's (D-NV) bill would require websites and online services which are directed to children to obtain parental consent prior to collecting information from children under thirteen. His bill was approved by the Senate Commerce Committee on Thursday afternoon, October 1.

The Senate will likely resume business on Monday with consideration of a major piece of legislation -- HR 10, the "Financial Services Act." The Senate will probably return to S 442 on Tuesday. Sen. Bob Graham (D-FL) will attempt a filibuster of the bill, and a cloture vote under Senate Rule XXII, will be held on cutting off further debate.

Several other amendments are likely to be offered. One likely amendment would extend the moratorium to five years. The version of the bill approved by the Senate Finance Committee has a two year moratorium, while the bill approved by the Senate Commerce Committee has a six year moratorium. The House bill (HR 4105 EH) has a three year moratorium.

Sen. McCain will also likely offer an amendment to "grandfather" certain Internet taxes that are already in effect.

Finally, Sen. Bryan Dorgan (D-ND) during the floor debate that it is likely that Sen. Dan Coats (R-IN) will offer as an amendment his bill banning distribution over the web to minors material that is harmful to minors. Some people refer to this bill as CDA II.

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Sen. Dale Bumpers (D-AR) has been trying for years to pass legislation that would require mail order catalogue retailers to collect state and local taxes on the merchandise they sell to out of state purchases. "I have lost this amendment several times," conceded Bumpers.

The problem, according to Sen. Bumpers, is twofold. First, the "L.L. Beans" have an unfair competitive advantage over "Main Street businesses" because they do not have to collect sales taxes for the states and localities where their purchasers reside. Second, they reduce the sales tax revenues of state and local governments.

Sen. Bumpers even lamented all of the mail order catalogues that are clogging up land fills across the country.

Now that businesses are using the Internet to retail goods and services, they present the same problem as mail order catalogue companies, according to Sen. Bumpers. Hence, the amendment which he offered covered both mail order and Internet retailers.

"Mail order houses are selling over 100 billion dollars of goods through the mail" every year said Bumpers. This means billions in lost tax revenues. Bumpers added that in Arkansas, "we depend on the sales tax in our state for 50% of our educational funds." To Bumpers, e-commerce will only aggravate this problem. "This is a states' rights issue," he concluded.

Sen. Bumpers and Sen. Wyden argued about whose legislation was best for small businesses. Sen. Bumpers claimed that passing his amendment would help the small businesses with store fronts on Main Street compete with the "L.L. Beans." Sen. Wyden rebutted that his bill without the amendment was better because the Internet offered small businesses the chance to compete with "Wal Marts."

"For the small business, the Internet is a chance to compete with the Walmarts, and to compete with the big guys, because geography becomes irrelevant," said Wyden.

Wyden summed up his bill as follows: "The essence of this bill is that in the 21st Century, the new digital economy should be built on the principal of technological neutrality. The Internet should get no preference, but nor should the Internet be the target of selective discrimination. Unfortunately, we have seen that around the country. We have seen instances, for example, where if you purchase a newspaper the traditional way -- what's called "snail mail" -- it is sent to you in your home, you pay no tax. But, if you get the same newspaper via the Internet you pay a hefty tax."

Sen. Bumpers, Sen. Wyden, and Sen. McCain also differed on the consequences of allowing thousands of jurisdictions taxing Internet commerce. Sen. Wyden said that we "don't want to have the Internet look like Dodge city before the Marshalls showed up." Sen. Bumpers argued that people should not be fooled by the argument that there are too many taxing jurisdictions for retailers to keep up with. "You push a computer button and its done," he claimed.

McCain also argued that "this amendment represents a very large tax on the American public."

"This bill is not a tax increase," Bumpers said. "If a state does not wish to collect sales taxes on internet and mail order sales into their state, then they can simply pass a law saying so. That is their prerogative. But if they choose to have a sales tax, the federal government should allow them to enforce it. That is what this bill does--it authorizes the states to collect taxes fairly and evenly from all who conduct business in the state. By doing that, the states can protect their jobs and businesses against unfair competition from out-of-state."

Sen. McCain made a motion to table the Bumpers amendment. The motion to table passed 66-29, thereby killing the amendment. The vote, which is set out below, broke down largely along party lines, with Republicans tending to vote to table the amendment.

The initial vote was 65-30. Sen. Jesse Helms (R-NC) slipped back onto the mostly empty floor of the Senate shortly after the vote to ask and receive unanimous consent to have his voted changed. He stated that he had accidentally voted against tabling the Bumpers amendment.

Senate Roll Call Vote on
Motion to Table the Bumpers Amendment (No. 3677)
to the Internet Tax Freedom Act (S 442)