Sen. McCain Introduces Bill to Expand the Internet Tax Freedom Act

(September 22, 1999) Sen. John McCain introduced a bill on Wednesday, September 22, that would make permanent the Internet Tax Freedom Act's three year ban on new Internet taxes, and expand the scope of the act to prohibit sales and use taxes on good and services sold through electronic commerce.

The Congress passed the original Internet Tax Freedom Act (ITFA) in the closing days of the 105th Congress. It imposed a three year ban on new discriminatory taxes on the Internet, and established a commission to study the issue. Rep. Chris Cox (R-CA) sponsored the House bill, while Sen. Ron Wyden (D-OR) sponsored the Senate bill. Sen. McCain was the Republican floor manager of the bill.

The Senate version of the bill, S 442 ES (105th), was ultimately added to the Omnibus Appropriation Bill (P.L. 105-277), which was passed by both houses, and signed by the President last October.

Sen. McCain's bill would make the ITFA three year ban permanent. It would also expand the list of types of taxes covered by the ban. Currently, the ITFA covers taxes on Internet access, and "multiple or discriminatory" taxes. The McCain bill would also ban sales and use taxes on electronic commerce.

There are two other bills pending in the Senate pertaining to Internet taxes. Sen. Bob Smith (I-NH), who, like Sen. McCain, is running for President, introduced S 328 IS on January 28, 1999. His bill would also make the Internet Tax Freedom Act permanent.

Sen. Ernest Hollings (D-SC) introduced S 1433 IS on July 26, 1999. His bill would impose a national retail sales tax on Internet sales, to be collected by the IRS. The bill would amend the Internal Revenue Code by adding a new subchapter which provides, in part that:

"There is hereby imposed on the first retail sale of merchandise effected via the Internet, by mail order through a catalog, or by direct sales other than through a local merchant, a tax equal to 5 percent of the price for which so sold."

Sen. John McCain

Sen. McCain described his bill in a press release. "Commerce conducted through the Internet is experiencing tremendous growth. This growth helps our nation's economy by creating new jobs and new opportunities for businesses. This legislation will ensure that Internet commerce continues to grow by keeping it free form burdensome, anti-consumer taxation."

"We are at a critical juncture," Sen. McCain continued. "We can choose to hamper the growth of this vital medium by imposing old ways of thinking that just do not apply. Or we can seek new principles to govern in this new era of ubiquitous access to information, people, products and services."

The McCain bill also contains a "sense of the Senate" clause, regarding what position U.S. negotiators should take in international trade negotiations. It provides, in full:

"It is the sense of the Senate that United States representatives to the World Trade Organization, and any other multilateral trade organization of which the United States is a member, should resolutely advocate that it is the firm position of the United States that electronic commerce conducted via the Internet should not be burdened by national or local regulation, taxation, or the imposition of tariffs on such commerce."

 The key section of the ITFA currently reads as follows:

(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--

(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.

If the McCain bill were adopted, it would read as follows:

(a) Moratorium.--No State or political subdivision thereof shall impose any of the following taxes after September 30, 1998:

(1) taxes on Internet access, unless such tax was generally imposed and actually enforced prior to October 1, 1998;

(2) sales or use taxes for domestic or foreign goods or services acquired through electronic commerce; and

(3) multiple or discriminatory taxes on electronic commerce.