[House Report 113-510]
[From the U.S. Government Publishing Office]
113th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 113-510
======================================================================
PERMANENT INTERNET TAX FREEDOM ACT
_______
July 3, 2014.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Goodlatte, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 3086]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 3086) to permanently extend the Internet Tax Freedom
Act, having considered the same, report favorably thereon
without amendment and recommend that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 1
Background and Need for the Legislation.......................... 2
Hearings......................................................... 10
Committee Consideration.......................................... 10
Committee Votes.................................................. 10
Committee Oversight Findings..................................... 12
New Budget Authority and Tax Expenditures........................ 12
Congressional Budget Office Cost Estimate........................ 12
Duplication of Federal Programs.................................. 14
Disclosure of Directed Rule Makings.............................. 15
Performance Goals and Objectives................................. 15
Advisory on Earmarks............................................. 15
Section-by-Section Analysis...................................... 15
Changes in Existing Law Made by the Bill, as Reported............ 15
Dissenting Views................................................. 16
Purpose and Summary
In 1998, Congress temporarily banned state and local
governments from taxing Internet access or placing multiple or
discriminatory taxes on Internet commerce. With minor
modifications, this ban was extended three times, with enormous
bipartisan support. The most recent extension passed in 2007,
but it expires on November 1, 2014. The Permanent Internet Tax
Freedom Act (PITFA) would convert the moratorium into a
permanent ban--on which consumers, innovators and investors can
permanently rely--by simply striking the 2014 end date.
Background and Need for the Legislation
I. HISTORICAL BACKGROUND
The Internet Tax Freedom Act (ITFA) was enacted on October
21, 1998 as Title XI of Division C of the Omnibus Consolidated
and Emergency Supplemental Appropriations Act.\1\ ITFA placed a
3-year moratorium on the ability of State and local governments
to: (1) impose new taxes on Internet access, or (2) impose any
multiple or discriminatory taxes on electronic commerce. The
Act also grandfathered certain State and local access taxes
that were ``generally imposed and actually enforced prior to
October 1, 1998.''
---------------------------------------------------------------------------
\1\Internet Tax Freedom Act, Pub. L. No. 105-277, Sec. 1101, 112
Stat. 2681-719 (1998).
---------------------------------------------------------------------------
This initial Internet tax moratorium expired on October 21,
2001. The Internet Tax Nondiscrimination Act was then enacted
on November 28, 2001.\2\ It provided for a 2-year extension of
the prior moratorium, through November 1, 2003. The moratorium
was then extended for an additional 4 years, through November
1, 2007, by the Internet Tax Nondiscrimination Act of 2003,
enacted on December 3, 2004.\3\ The moratorium was extended a
third time through November 1, 2014 by the Internet Tax Freedom
Act Amendments Act of 2007.\4\
---------------------------------------------------------------------------
\2\Pub. L. No. 107-75, Sec. 2, 115 Stat. 703 (2001).
\3\Pub. L. No. 108-435, Sec. Sec. 2-6A, 118 Stat. 2615, 2615-2618
(2004).
\4\Pub. L. No. 110-108, Sec. Sec. 2-6, 121 Stat. 1024, 1024-1026
(2007); INTERNET TAX FREEDOM ACT AMENDMENTS OF 2007, H. Rep. No. 110-
372.
---------------------------------------------------------------------------
II. ITFA TODAY
Previous extensions made substantive changes to the ITFA
moratorium to clarify it and address technological
developments. PITFA does not. It merely strikes the end date of
the current moratorium. That current statutory framework
appears at 47 U.S.C. 151 (note) and provides as follows:
States and localities are prohibited from imposing
``[t]axes on Internet access'' or ``[m]ultiple or
discriminatory taxes on electronic commerce.''
Internet Access
Internet access means a service that ``enables users to
connect to the Internet to access content, information, or
other services.'' This includes ``telecommunications to the
extent such telecommunications are purchased, used or sold to
provide Internet access'' (e.g., DSL.) Also covered are
incidental services ``such as a home page, electronic mail and
instant messaging[,] video clips and personal electronic
storage capacity'' whether packaged with Internet access or
sold separately. The definition specifically excludes ``voice,
audio or video programming'' or other products and services . .
. that utilize Internet protocol or any successor protocol and
for which there is a charge.''
Multiple or Discriminatory Taxes
A multiple tax means ``any tax that is imposed by one State
. . . on . . . essentially the same electronic commerce'' that
is taxed by ``another State . . . without a credit for taxes
paid in other jurisdictions.'' For example, a resident of
Virginia downloads a movie from a company based in Seattle
while waiting at the airport in Chicago. Three states could
claim the right to tax it; Virginia, Washington and Illinois.
The statute does not establish priority among those claims. It
merely requires credits so the customer is not subject to three
separate tax levies.
A discriminatory tax on Internet commerce is defined as one
that is either ``not generally imposed'' or is ``not imposed at
the same rate'' on similar transactions ``accomplished through
other means.'' Another form of discriminatory tax is separately
classifying Internet service providers (ISPs) for purposes of
applying a higher tax rate than is imposed on similar
information services.
The term also includes any tax where a factor in
determining a remote seller's collection obligation is the sole
ability to access a site on a seller's remote server. Similarly
covered are taxes where the ISP is deemed the seller's agent
solely because it displays information or processes orders for
the seller on an out-of-state computer server.
Tax
The term tax includes taxes on Internet access, regardless
of whether it is imposed on the seller or the purchaser of
Internet access. However, it excludes taxes on net income,
capital stock, net worth, or property value as well as similar
broad based receipts taxes that four states rely on in lieu of
corporate income taxes: These are Washington's business &
occupation tax, Michigan's gross receipts tax, Ohio's
commercial activity tax and Texas's margins tax.
Pornography Exception
The statute contains several exceptions. In particular, the
taxing restrictions do not apply to commercial communications
of pornography unless minors' access to the material is
restricted by requiring a credit card, age verification or
other reasonable measures. In addition, Internet access
providers cannot enjoy the benefit of the tax moratorium unless
they offer customers screening software to limit minors' access
to pornographic material.
Bundling Rule
The statute concludes with a number of miscellaneous items,
first of which is a bundling rule. Ordinarily, if a merchant
bundles taxable and non-taxable items, the taxable item
``taints'' the nontaxable item and the entire bundled package
is taxable. ITFA's accounting rule changes this, enabling
companies to sell consumers a bundled package of services that
includes Internet access, while allowing the vendor to unbundle
the services in their internal books and records so that they
can apply the tax just to the taxable portion. For example,
consumers are offered a triple play package of voice, video and
broadband. If the provider can reasonably identify the charges
for Internet access (i.e., broadband) from its books and
records kept in the regular course of business, only the
taxable services (i.e., voice & video) will be subject to
taxation and not the charges for broadband Internet access.
911 Access Fee, USF & Other Exceptions
The law specifies that it does not prohibit the collection
of the 911 access or Universal Service Fund (USF) fees. The USF
is imposed on telephone service rather than Internet access
anyway, although the FCC periodically contemplates broadening
the base to include data services. The law adds that nothing in
ITFA should affect a ``regulatory proceeding that is not
related to taxation.'' This is important because the moratorium
contains terminology like ``telecommunications service'' which
is common to other regulatory contexts where the definition of
the same words may have evolved differently.
Finally, the statute exempts the Texas Municipal Access
Line Fee (TMALF) from the moratorium. The TMALF is essentially
a fee for the use of public rights of way to provide
traditional telecommunications service. Providers did not
consider the TMALF to be a tax on Internet access because it
has always been imposed on communications lines used for
traditional telecommunications services (e.g. voice).
Grandfathers
A grandfather clause in ITFA allows states and localities
to continue imposing state and local taxes on Internet access
that were ``generally imposed and actually enforced prior to
October 1, 1998.''
The history behind the grandfathers is instructive as to
the way the law has evolved to keep pace with technological
innovation. In 1998, most Internet services were dial-up. Users
unplugged their phones, plugged the line into their computers
and dialed into a portal like AOL. If anyone called, Internet
access was disrupted. Since customers still primarily used
their phones for voice calls, protecting Internet access from
taxation meant focusing on the portal. That soon changed with
Digital Subscriber Lines (DSL) which split the telephone line
to provide a dedicated Internet portal as well as uninterrupted
phone service and cable modem service. Protecting Internet
access required protection not only of the portal, but the
dedicated transmission piece as well. In addition, Internet
access sold by cable providers, often described as cable modem
service, was ruled to be an information service. States took
different views as to how these services should be taxed. Some
states argued the moratorium applied only to the portal not the
transmission component (telecommunications transport) sold by
telephone companies; because cable modem service was
characterized as an information service, states often found the
moratorium applied to the entire Internet access charge by
cable providers. Furthermore, if the Internet service provider
(ISP) billed the transmission piece separately, states
generally took the position the charge for transmission was
taxable telecommunications,; if ISPs billed it as a package the
states often claimed the entire package, including the portal,
was ``tainted'' and taxable while other states found the
moratorium to be applicable to such charges.
The 2003 extension addressed the problem by clarifying that
``Internet Access'' includes the transmission
(telecommunications transport or backbone] piece: ``The term
`Internet access' . . . means a service that enables users to
connect to the Internet . . . [and] . . . includes the
purchase, use or sale of telecommunications . . . to the extent
such telecommunications are purchased, used or sold . . . to
provide such service.''' As a concession, it gave states that
had been taxing DSL as telecommunications until November 1,
2005 to cease and desist.
A number of states complied, but some recalcitrant
jurisdictions sought to evade the law by reinterpreting the
intent of the grandfathers. They claimed their taxation of the
transmission component (DSL) was based upon laws ``generally
imposed and actually enforced'' prior to 1998. This argument
was strained since prior to 1998 DSL did not generally exist,
however some states insisted their pre-1998 laws were always
intended to apply to telecommunications services so the telecom
transport component used in delivering Internet access should
be covered by the original grandfather rather than the 2003
grandfather that expired in 2005.
To ensure that the transmission element (often referred to
as the ``Internet backbone'') remained tax free, Congress
addressed this lingering transmission issue in the 2007
extension. It reinforced its intent that the moratorium on
taxing Internet access included the transmission piece and that
only those states subject to the original grandfather could
take advantage of it. These original state taxes, identified at
the time ITFA was originally enacted, were distinguishable from
the recalcitrant states who had not taken public positions
indicating an intent to tax the Internet portal alone, prior to
1998. Nevertheless, it gave the final recalcitrant states until
June 30, 2008 to comply, provided the tax on transmission was
based on a public ruling or pending litigation prior to July 1,
2007.
In sum, as the moratorium stands today, only the pre-1998
grandfather clause survives. It covers seven states. They are,
SD, ND, WI, NM, HI (excise tax), TX (on amounts over $25) and
OH (tax on Internet use by business).
III. MAJOR CONSIDERATIONS
A Permanent Moratorium Is Warranted
The policy reasons for renewing the moratorium have shifted
over time. The original justification was to incubate a
fledgling industry. It has worked: According to the Pew
Research Center, 86 percent of American adults used the
Internet in 2013, up from 14 percent in 1995.\5\
---------------------------------------------------------------------------
\5\Nat'l Assoc. of Counties, Protect County Taxing Authority:
Support a Short-Term Extension of the Internet Tax Freedom Act (ITFA)
(2014).
---------------------------------------------------------------------------
Today, it is precisely the ubiquity of the Internet that
councils for a permanent extension. The Internet has become the
primary driver of U.S. economic growth, innovation and
productivity. The Internet is indispensable for finding jobs
and accessing education and healthcare resources. It helps
small businesses find new markets and consumers across the
country and the world. For example, during the 2007 renewal,
the Committee heard testimony that more than 75% of the
remarkable productivity growth that has increased jobs and
income since 1995 was due to investment in telecommunications
networks and the information technology transported across
them.\6\
---------------------------------------------------------------------------
\6\Internet Tax Freedom Act: Internet Tax Moratorium: Hearing
Before Subcomm. on Commercial and Admin. Law of the H. Comm. On the
Judiciary, 110th Cong. 30 (2007).
---------------------------------------------------------------------------
One should be highly skeptical of the suggestion from
States and localities that Internet adoption rates are not
affected by taxes. It is an economic axiom that as price rises
demand falls. If the moratorium lapses, state
telecommunications taxes could take effect and those rates are
already inordinately high: In 2007, the average tax rate on
communications services was 13.5%, more than twice the rate of
6.6% on all other goods and services. Some rates even exceed
sin tax rates. For example, in Jacksonville, Florida,
households pay 33.24% wireless taxes, higher than beer (19%),
liquor (23%) and tobacco (28%). Moreover, these tax burdens
fall heavier on low income households. They pay ten times as
much in communications taxes as high income households as a
share of income.\7\
---------------------------------------------------------------------------
\7\Id. at 32.
---------------------------------------------------------------------------
In an attempt to overcome this basic economic truth,
opponents of H.R. 3086 cite a 2006 Government Accountability
Office (GAO) study. They say it found ``no significant
difference'' in broadband adoption between states that tax
Internet access (pursuant to grandfathers) and those that do
not.\8\ Actually, GAO said its study ``indicat[ed] that the
imposition of the tax may have reduced the likelihood that a
household would purchase broadband service.'' However, it could
not be confident of that finding because it was only
statistically significant at the 10 percent level, rather than
the traditional 5% cutoff, and there were confounding factors.
---------------------------------------------------------------------------
\8\Michael Mazerov, Congress Should End, Not Extend, Prohibition on
Taxing Internet, Ctr. on Budget and Policy Priorities (Jun. 18, 2014),
http://www.offthechartsblog.org/congress-should-end-not-extend-
prohibition-on-taxing-Internet-access/.
---------------------------------------------------------------------------
Standing against this equivocal finding, are a number of
studies showing that price has a demonstrable impact. The same
year the GAO report was published, former White House Chief
economist Austan Goolsbee authored a paper finding the average
elasticity for broadband to be 2.75. Elasticity is a measure of
price sensitivity and here indicates that a $1.00 increase in
Internet access taxes would reduce expenditures on those
services by an average of $2.75.\9\
---------------------------------------------------------------------------
\9\Adams Nager, Misinformation in the Internet Tax Freedom Act
Debate, The Innovation Files (Jun. 23, 2014), http://
www.innovationfiles.org/misinformation-in-the-Internet-tax-freedom-act-
debate/.
---------------------------------------------------------------------------
According to a 2010 survey by the National
Telecommunications and Information Administration, 24% of
Americans who do not use the Internet report cost as the main
reason.\10\ Figures from 2012 show that 25.2% of the US
population remains without Internet access.\11\ The numbers are
dramatically higher for low income and minority households.
Just 43 percent of households with incomes less than $25,000
had Internet access in 2011, and only 35% of households with no
high school diploma. The data also showed that only 55% of
African American households and 56% of Hispanic households had
Internet access.\12\
---------------------------------------------------------------------------
\10\The Information Technology & Innovation Foundation, The Whole
Picture: Where America's Broadband Networks Really Stand at 35 (2013)
(available at http://www2.itif.org/2013-whole-picture-america-
broadband-networks.pdf); Presumably by ``price'' some respondents meant
the price of hardware such as a computer, not simply the connection
fee. On the other hand, hardware as a one-time cost may not present as
daunting a burden as an access tax which is recurring.
\11\U.S. Census Bureau, Computer and Internet Access in the United
States (2012) (available at https://www.census.gov/hhes/computer/files/
2012/Computer_Use_Infographic_
FINAL.pdf).
\12\Nat'l Telecomm. and Info. Admin., Exploring the Digital Nation:
America's Emerging Online Experience at 26 (2013) (available at http://
www.ntia.doc.gov/files/ntia/publications/exploring_the_digital_nation_-
_americas_emerging_online_experience.pdf).
---------------------------------------------------------------------------
These findings are consistent with the fact that, in most
places in America, even an incremental cost increase is not
trivial. The White House underscored this point in another
context by launching an initiative called ``What $40 means to
Americans Across the Country.'' It highlighted how, for working
families, that money ``buys things like school lunches, the gas
needed to get to work or visit ailing relatives, and co-pays
for doctor visits and essential prescription medicines.''\13\
---------------------------------------------------------------------------
\13\What 40 Means to Americans Across the Country, White House,
http://www.whitehouse.gov/40dollars.
---------------------------------------------------------------------------
Finally, Internet access is not simply a consumer good to
be taxed. It is the greatest gateway to knowledge and self-help
that has ever existed. It is the modern equivalent of the great
library of Alexandria, accessible from anywhere on the planet.
Government simply should not charge citizens a fee to enter
this remarkable world. Government will reap dividends later as
citizens leverage unprecedented scientific, educational and
economic opportunities to better their lives, improve society
and grow the economy.
Action Is Needed Now
Even though PITFA enjoys enormous bipartisan support, ISPs
must prepare for the possibility that ITFA could lapse. The
moratorium has lapsed twice before; for a month in 2001, and 13
months in 2003. In both cases, subsequent renewals applied
retroactively without much fuss. This time it would be
different for several reasons:
Broader Customer Base--Consider Verizon as an example. In
2003, approximately 5% of its revenue was derived from Internet
access.\14\ Today, it is approximately 40-45%.\15\ Similarly,
the customer base for Internet access services has grown from
approximately 6 million in 2003 to 75 million today. All these
new customers mean many more Americans would be affected by new
Internet access taxes.
---------------------------------------------------------------------------
\14\Delivering the New World of Communication, 2003 Verizon Comm.
Inc. Ann. Rep. 9.
\15\The World's Biggest Challenges Deserve Even Bigger Solutions:
Powerful Answers, 2013 Verizon Comm. Inc. Ann. Rep. 2.
---------------------------------------------------------------------------
Expiring Moratorium is Broader Today--Under early versions
of the moratorium, states continued to be aggressive in taxing
the data transmission associated with Internet access. States
argued that Federal law only forbade taxing the Internet portal
not the data transmission used to `travel' the Internet. For
example, they claimed the portal access to the AOL server was
tax free, but the data transmission used to connect to the web
and access data was not. Congress eventually closed this
loophole by barring taxes on transmission to the extent it was
used to provide Internet access, but not until 2004. Thus,
customers were likely paying taxes on the transmission piece,
which is the bulk of the charges for Internet service, even
before the moratorium lapsed in 2003. Accordingly, the impact
of the lapse was not as noticeable. Today, because transmission
is not taxable, consumers would be much harder hit by any lapse
in the moratorium.
Expiration Could Automatically Trigger State Taxes--Montana
law specifically states that should ITFA expire, Internet
access will be taxed at 3.75%. In the other 49 states, it is
feared that the current telecom and sales tax laws are broad
enough to cover at least some portion of the Internet access
under their existing statutes. In other words, were ITFA to
lapse, Internet access taxes would be triggered automatically
in many states without further state action. This was not a
problem in 2003, because the types of taxes that would be
primarily triggered by a lapse today are taxes on the
transmission piece which were arguably not prohibited by ITFA
at that time.
Telecommunications companies (wire-line, cable and
wireless) have already begun undertaking comprehensive analyses
of state and local tax statutes. It is a substantial
undertaking. Their tax divisions need to examine taxation of
Internet access under sales and use taxes, utility taxes,
telephone taxes, wireless taxes and cable franchise fees. They
need to study taxability of Internet access, broadband access,
email, instant messaging, home page, video clips, personal
electronic storage capacity as well as examine taxability as a
telecommunications service, information service, data
processing service, computer service, and digital service. The
uncertainty is a drain on their resources.
Notice to Customers--If ITFA expires, broadband providers
believe customers need 30-60 days' notice of the tax increase
either by law, contract or as a matter of good customer
service. State notice laws would primarily affect land line and
cable providers because wireless carriers are not covered by
most state regulatory regimes. Additionally, while customer
contracts typically do not require notice of sales tax changes,
many of the rate changes would be classified as telecom
specific taxes which do require notice. The biggest issue is
one of customer service. Consumers have not been taxed on these
services for more than 10 years. One carrier estimates that the
typical family could see anywhere from $11 to $22 in new taxes
every month for using the Internet. If the tax increase is
unexpected, providers anticipate a flood of calls to their
customer service centers. Handling customer care calls is
expensive. To prevent this, the carriers would likely begin
notifying customers no later than September 1, unless PITFA
becomes law sooner.
Preparing IT for Compliance--In case ITFA lapses, broadband
providers are already dedicating resources to prepare their
information technology and billing systems for compliance with
these new taxes. In many states where taxes could be triggered,
bills must list the state tax as a distinct line item on the
customer's bill. More importantly, to minimize tax exposure,
bundled services will have to be broken into components to
separate out the portal from the transmission element. ITFA
does not distinguish between these elements, but many state
laws do. When ITFA expires, these states will begin taxing the
data transmission, but the portal could still be tax-free under
state law. If providers fail to separate out the portal piece,
and tax the entire bundle, they could be at risk to class
action lawsuits for collecting too much tax.
Retroactive Renewal Insufficient--Given the increased user
base, ITFA cannot simply be renewed retroactively, as it was in
the past, without creating complications. States would need to
work with providers to refund the taxes collected from a much
larger pool of customers than existed during prior extensions.
This becomes even more challenging for customers that are no
longer with the provider that collected the taxes originally.
Continuing customers could receive a credit on their current
bill, but providing refunds to significant numbers of customers
who switched to other providers would be far more challenging.
For example, Verizon has customer churn of approximately
100,000 per month.\16\ Verizon would need to undertake a search
for these customers and refund the taxes they previously paid.
---------------------------------------------------------------------------
\16\The World's Biggest Challenges Deserve Even Bigger Solutions:
Powerful Answers, 2013 Verizon Comm. Inc. Ann. Rep. 13.
---------------------------------------------------------------------------
Grandfathers Should be Properly Permitted to Expire
Seven states remain grandfathered under current law. They
are, SD, ND, WI, NM, HI (excise tax), TX (tax on amounts over
$25) and OH (tax on Internet use by business). Both the
moratorium and the grandfathers expire on November 1, 2014, but
under separate expiration provisions. PITFA strikes only the
moratorium's expiration provision. This allows the grandfathers
to expire for the remaining seven state and local taxes, so
that the tax moratorium is consistent nationwide.
There are good reasons to let the remaining grandfather
lapse. For example, the original intent of the grandfather was
to give states then taxing Internet access some time to
transition to other sources of revenue. Indeed, a number of
states discontinued their taxation of Internet access in
support of a national broadband policy. For those that still
haven't ceased their taxation of Internet access, it has been
16 years, time enough to change their tax codes.
PITFA enjoys support even from Members in the grandfathered
states, a number of whom have signed on as cosponsors in both
chambers.
Constitutional Authority
Article 1, Section 8, Clause 3 of the U. S. Constitution
gives Congress authority to ``regulate Commerce . . . among the
several States.'' As the Supreme Court has explained, the
Commerce Clause . . . [is] informed . . . by structural
concerns about the effects of state regulation on the national
economy. Under the Articles of Confederation, state taxes and
duties hindered and suppressed interstate commerce; the Framers
intended the Commerce Clause as a cure for these structural
ills.''\17\ The Federal ban on multiple and discriminatory
taxes on e-commerce fits squarely within this authority.
---------------------------------------------------------------------------
\17\Quill Corp. v. North Dakota, 504 U.S. 298 (1992).
---------------------------------------------------------------------------
Internet access taxes fall within that framework as well.
Furthermore, even if the hardware to provide that connection
exists entirely within the taxing state, the levy hinders
access to a nationwide network. Internet access may properly be
viewed as the on-ramp to the information superhighway and thus
indispensable to the Internet itself. A helpful analogy may be
that taxing Internet access is like a state putting a tollbooth
on the Interstate Highway System which generally is
prohibited.\18\
---------------------------------------------------------------------------
\18\Robert S. Kirk, Cong. Research Serv., Tolling of Interstate
Highways: Issue in Brief (2013) (available at http://www.fas.org/sgp/
crs/misc/R42402.pdf).
---------------------------------------------------------------------------
Indeed, there are a variety of Federal statutes that
preempt state and local taxation in similar contexts. For
example, 49 U.S.C 40116 prohibits states and localities from
imposing a tax on ``an individual or the transportation of an
individual traveling in air commerce, the sale of air
transportation or the gross receipts from that air commerce or
transportation.'' Other similar statutes prohibit taxation of
interstate bus services and discriminatory taxation of
railroads.\19\
---------------------------------------------------------------------------
\19\49 U.S.C Sec. 14505, 49 U.S.C Sec. 11501.
---------------------------------------------------------------------------
Hearings
The Committee on the Judiciary held no hearings on H.R.
3086.
Committee Consideration
On June 18, 2014, the Committee met in open session and
ordered the bill H.R. 3086 favorably reported without
amendment, by a rollcall vote of 30 to 4, a quorum being
present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following rollcall votes occurred during the Committee's
consideration of H.R. 3086.
1. Mr. Conyers offered an amendment that would extend the
moratorium for 4 years rather than make it permanent. The
amendment was defeated 12 to 21.
ROLLCALL NO. 1
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI).................... X
Mr. Coble (NC)................................. X
Mr. Smith (TX)................................. X
Mr. Chabot (OH)................................ X
Mr. Bachus (AL)................................ X
Mr. Issa (CA).................................. X
Mr. Forbes (VA)................................ X
Mr. King (IA).................................. X
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)...................................
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC)................................. X
Mr. Labrador (ID).............................. X
Ms. Farenthold (TX)............................
Mr. Holding (NC)............................... X
Mr. Collins (GA)............................... X
Mr. DeSantis (FL)..............................
Mr. Smith (MO)................................. X
[Vacant].......................................
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Mr. Scott (VA)................................. X
Ms. Lofgren (CA)............................... X
Ms. Jackson Lee (TX)........................... X
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)................................... X
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA).............................. X
Ms. DelBene (WA)............................... X
Mr. Garcia (FL)................................ X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
------------------------
Total...................................... 12 21
------------------------------------------------------------------------
2. Motion to report H.R. 3086 favorably. Passed by a vote
of 30 to 4.
ROLLCALL NO. 2
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI).................... X
Mr. Coble (NC)................................. X
Mr. Smith (TX)................................. X
Mr. Chabot (OH)................................ X
Mr. Bachus (AL)................................ X
Mr. Issa (CA).................................. X
Mr. Forbes (VA)................................ X
Mr. King (IA).................................. X
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)................................... X
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC)................................. X
Mr. Labrador (ID).............................. X
Ms. Farenthold (TX)............................ X
Mr. Holding (NC)............................... X
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Mr. Smith (MO)................................. X
[Vacant].......................................
Mr. Conyers, Jr. (MI), Ranking Member..........
Mr. Nadler (NY)................................ X
Mr. Scott (VA)................................. X
Ms. Lofgren (CA)............................... X
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)................................... X
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA).............................. X
Ms. DelBene (WA)............................... X
Mr. Garcia (FL)................................ X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
------------------------
Total...................................... 30 4
------------------------------------------------------------------------
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises 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.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives 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. 3086, 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, June 26, 2014.
Hon. Bob Goodlatte, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3086, the
``Permanent Internet Tax Freedom Act.''
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Melissa
Merrell, who can be reached at 225-3220.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 3086--Permanent Internet Tax Freedom Act.
As ordered reported by the House Committee on the Judiciary
on June 18, 2014.
SUMMARY
H.R. 3086 would make permanent a moratorium on state and
local taxes on Internet access and some taxes on electronic
commerce. Under current law, the moratorium is set to expire on
November 1, 2014. CBO estimates that enacting H.R. 3086 would
have no impact on the Federal budget, but beginning in 2014, it
would impose significant annual costs on some state and local
governments. The bill would not affect Federal direct spending
or revenues; therefore, pay-as-you-go procedures do not apply.
By permanently prohibiting state and local government from
collecting certain types of taxes, H.R. 3086 would impose an
intergovernmental mandate as defined in the Unfunded Mandates
Reform Act (UMRA). CBO estimates that the mandate would cause
some state and local governments to lose revenue beginning in
November 2014; those losses would exceed the threshold
established in UMRA for intergovernmental mandates ($76 million
in 2014, adjusted annually for inflation) beginning in 2015.
CBO estimates that the direct costs to states and local
governments would probably total more than several hundred
million dollars annually. The bill contains no private-sector
mandates as defined in UMRA.
ESTIMATED COST TO THE FEDERAL GOVERNMENT
CBO estimates that enacting H.R. 3086 would have no impact
on the Federal budget.
PAY-AS-YOU-GO CONSIDERATIONS
None.
ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS
The Internet Tax Freedom Act (ITFA), as amended, currently
prohibits state and local governments from imposing taxes on
Internet access and some taxes on electronic commerce until
November 1, 2014. The ITFA also contains an exception to this
moratorium, sometimes referred to as the grandfather clause,
which allows some state and local governments to continue
taxing Internet access if such tax was generally imposed and
actually enforced prior to October 1, 1998. H.R. 3086 would
make permanent the moratorium and eliminate the grandfather
clause. Those changes constitute intergovernmental mandates as
defined in UMRA because they would prohibit state and local
governments from collecting taxes that they otherwise would
collect, and in some cases, are currently collecting.
The primary effect of the bill would be the loss of state
and local revenue starting in November 2014. UMRA includes in
its definition of the direct costs of a mandate the amounts
that state and local governments would be prohibited from
raising in revenues to comply with the mandate. Eliminating the
grandfather clause would result in direct costs (in the form of
forgone tax revenues) to those state and local governments that
are currently collecting such revenues but would be precluded
from doing so after H.R. 3086 is enacted.
While there is some uncertainty about the number of
jurisdictions currently collecting affected taxes-and the
precise amount of those collections-CBO believes that as many
as seven states (Hawaii, New Mexico, North Dakota, Ohio, South
Dakota, Texas, and Wisconsin) and several local jurisdictions
in those states are currently collecting such taxes.
Information from four of those states indicates that the tax
collections that would be prohibited total several hundred
million dollars annually; those losses would exceed the
threshold established in UMRA for intergovernmental mandates
($76 million in 2014, adjusted annually for inflation) for each
year, beginning in 2015.
It is possible that if the moratorium were allowed to
expire as scheduled under current law, some state and local
governments would enact new taxes or decide to apply existing
taxes to Internet access and on electronic commerce during the
next 5 years. It is also possible that some governments would
repeal existing taxes or preclude their application to those
services. Because such changes are difficult to predict, for
the purposes of estimating the direct costs of the mandate, CBO
considered only the revenues from taxes that are currently in
place and actually being collected.
ESTIMATED IMPACT ON THE PRIVATE SECTOR
This bill contains no private-sector mandates as defined in
UMRA.
ESTIMATE PREPARED BY:
Federal Costs: Susan Willie
Impact on State, Local, and Tribal Governments: Melissa Merrell
Impact on the Private Sector: Amy Petz
ESTIMATE APPROVED BY:
Theresa Gullo
Deputy Assistant Director for Budget Analysis
Duplication of Federal Programs
No provision of H.R. 3086 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
The Committee estimates that H.R. 3086 specifically directs
to be completed no specific rule makings within the meaning of
5 U.S.C. 551.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
3086, makes permanent an existing moratorium that bars state
and local governments from taxing Internet access or placing
multiple or discriminatory taxes on Internet commerce.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 3086 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(e), 9(f), or 9(g) of Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Sec. 1. Short title
Section 1 sets forth the short title of the bill as the
Permanent Internet Tax Freedom Act.
Sec. 2. Permanent Moratorium
(a) Strikes the end date in the existing moratorium (47
U.S.C. 151 note) rendering it permanent.
(b) Effective Date--The date of 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 and
existing law in which no change is proposed is shown in roman):
INTERNET TAX FREEDOM ACT
(Public Law 105-277; 112 Stat. 2681-719; 47 U.S.C. 151 note)
* * * * * * *
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
may impose any of the following taxes [during the period
beginning November 1, 2003, and ending November 1, 2014]:
(1) * * *
* * * * * * *
Dissenting Views
INTRODUCTION
H.R. 3086, the ``Permanent Internet Tax Freedom Act,''
makes the Internet Tax Freedom Act\1\ permanent and ends the
Act's grandfather protections that apply to certain states. As
a result, the legislation will substantially reduce revenues
for those states. In fact, the Congressional Budget Office
estimates that H.R 3086 will cost states ``several hundred
million dollars annually'' in lost revenues.\2\
---------------------------------------------------------------------------
\1\Pub. L. 105-277, div. C, tit. XI (1998), 112 Stat. 2681-719, as
amended (codified in 47 U.S.C. Sec. 151 note (2014)).
\2\Congressional Budget Office Cost Estimate: Permanent Internet
Tax Freedom Act, H.R. 3086, 113th Cong. (June 26, 2014) (emphasis
added).
---------------------------------------------------------------------------
Citing these problems and other concerns presented by the
bill, the National Governors Association, the National
Association of Counties, the National League of Cities, the
U.S. Conference of Mayors, the Federation of Tax
Administrators, the League of California Cities, the California
State Association of Counties, the International City/County
Management Association, the Government Finance Officers
Association, the National Association of Telecommunications
Officers and Advisors, the American Federation of Labor and
Congress of Industrial Organizations (AFL-CIO), the American
Federation of State, County and Municipal Employees (AFSCME),
the American Federation of Teachers (AFT), the American
Federation of Government Employees (AFGE), the Communication
Workers of America (CWA), the Department for Professional
Employees (DPE), the International Association of Fire Fighters
(IAFF), the International Federation of Professional and
Technical Engineers (IFPTE), the International Union of Police
Associations (IUPA), the National Education Association (NEA),
the Services Employees Union International (SEIU), the United
Food and Commercial Workers International Union (UFCW), and the
Multistate Tax Commission oppose H.R. 3086.\3\
---------------------------------------------------------------------------
\3\Press Release, Nat'l Governors Ass'n, Regarding Internet Access
Tax (June 17, 2014), available at http://nga.org/cms/sites/NGA/home/
news-room/news-releases/2014--news-releases/col2-content/nga-statement-
regarding-intern-2.html; Letter from the League of Cal. Cities Exec.
Dir. Christopher McKenzie & the Cal. State Ass'n of Counties Exec. Dir.
Matt Cate to Rep. John Conyers, Jr., Ranking Member of the H. Comm. on
the Judiciary (June 17, 2014) (on file with the H. Comm. on the
Judiciary, Democratic Staff); Letter from the Nat'l Ass'n of Counties,
et al. to Rep. John Conyers, Jr., Ranking Member of the H. Comm. on the
Judiciary (June 17, 2014) (on file with the H. Comm. on the Judiciary,
Democratic Staff); Letter from the Am. Fed'n of Labor and Cong. of
Indus. Org. (AFL-CIO), et al. to Members of the H. Comm. on the
Judiciary (June 17, 2014) (on file with the H. Comm. on the Judiciary,
Democratic Staff); Letter from the Fed'n of Tax Adm'rs President David
M. Sullivan to Rep. Bob Goodlatte, Chair of the H. Comm. on the
Judiciary, & Rep. John Conyers, Jr., Ranking Member of the H. Comm. on
the Judiciary (June 19, 2014) (on file with the H. Comm. on the
Judiciary, Democratic Staff); Letter from the Multistate Tax Comm'n
Exec. Dir. Joe Huddleston to Rep. Bob Goodlatte, Chair of the H. Comm.
on the Judiciary, & Rep. John Conyers, Jr., Ranking Member of the H.
Comm. on the Judiciary (June 23, 2014) (on file with the H. Comm. on
the Judiciary, Democratic Staff).
---------------------------------------------------------------------------
For these reasons, and those discussed below, we
respectfully dissent and urge our colleagues to reject this
seriously flawed legislation.
DESCRIPTION AND BACKGROUND OF H.R. 3086
H.R. 3086 makes permanent the Internet Tax Freedom Act
(ITFA or Act) by striking the language in current law that
specifies the expiration date of the Act's temporary
moratorium, which currently is November 1, 2014. The bill also
eliminates the Act's current grandfather protections for states
that had in effect, as of the Act's original enactment date in
1998, laws taxing Internet access. The bill makes no other
changes to current law.
When enacted in 1998, the ITFA was originally intended to
prevent the potential stifling of the Internet and to foster
the growth of electronic commerce.\4\ It did so by: 1)
establishing a 3-year moratorium to prevent state and
localities from imposing new taxes on Internet access; 2)
prohibiting multiple states from taxing the same electronic
commerce transaction; and 3) ensuring that commerce over the
Internet would not be singled out for new discriminatory tax
treatment. Nevertheless, Congress also understood that while
encouraging the development of the Internet and its related
industries, it should balance the interests of state and local
governments to collect revenue. For that reason, the ITFA
included a grandfather clause to protect the state and local
Internet access taxes in effect prior to the enactment of the
Act. In adherence to this guidance, subsequent Congresses have
extended the Act's temporary moratorium, revised definitions,
and have expanded or extended certain grandfather
protections.\5\
---------------------------------------------------------------------------
\4\H.R. Rep. No. 105-570, pt. 1, at 7 (1998); H.R. Rep. No. 105-
570, pt. 2, at 2 (1998).
\5\The Internet Tax Nondiscrimination Act, Pub. L. No. 107-75, 115
Stat. 703 (2001), extended the moratorium until November 1, 2003. The
Internet Tax Nondiscrimination Act, Pub. L. No. 108-435, 118 Stat. 2615
(2004), extended the moratorium until November 1, 2007 and reimposed
the moratorium retroactively to November 1, 2003. The Internet Tax
Freedom Act Amendments Act of 2007, Pub. L. No. 110-108, 121 Stat.
1024-1026 (2007), extended the moratorium until November 1, 2014.
---------------------------------------------------------------------------
CONCERNS WITH H.R. 3086
I. H.R. 3086 Ignores the Evolution of the Internet Since 1998
The ITFA was intended as a temporary measure to assist and
nurture the fledgling Internet that back in 1998 was still in
its commercial infancy. In apparent oblivion to the
significantly changed environment that surrounds today's
Internet, H.R. 3086 still regards this technology as emerging
and in need of extraordinary protection in the form of
exemption from state taxation.
In many respects, the Internet of 2014 is nearly
unrecognizable from its 1998 predecessor. Today's Internet is
considerably different in terms of both the extent of
accessibility and the accompanying technology.\6\ What started
as primarily a dial-up service available through a handful of
providers, the Internet of today is nearly universally
available through thousands of Internet service providers using
technologies ranging from high-speed broadband cable or Digital
Subscriber Line services, to wireless, satellite, fiber optics,
and even broadband Internet access over power lines. This
evolution has helped the Internet spawn major innovation
initiatives and create myriad new industries.
---------------------------------------------------------------------------
\6\See Henry J. Reske, Ending Internet Law's Grandfather Clause
Could Cost States $500 Million, TAX ANALYSTS, June 24, 2014.
---------------------------------------------------------------------------
In recognition of the fact that the Internet's pace of
innovation would be complex and ever-changing technologically,
Congress intentionally made the original moratorium temporary
to ensure that Congress, industry, and state and local
governments would be able to monitor the issue and make
adjustments where necessary to accommodate new technologies and
market realities. With continued questions as to the scope of
the moratorium, the ongoing evolution of the Internet and its
developing role in commerce, a permanent moratorium is unwise.
A temporary moratorium, on the other hand, allows Congress to
exercise its oversight and legislative authority over the
ITFA.\7\ Indeed, it was because of the temporary nature of the
Internet tax moratorium that Congress was able in 2007 to
update the law's definition of Internet access, which had not
changed significantly since the Act's enactment in 1998.
---------------------------------------------------------------------------
\7\Letter from Jeffrey L. Esser, Exec. Dir. of the Gov't Fin.
Officers Ass'n (Apr. 7, 2014) (on file with H. Comm. on the Judiciary,
Democratic Staff).
---------------------------------------------------------------------------
Further, one of the original goals of the ITFA--to foster
electronic commerce by protecting it from multiple and
discriminatory taxation--has already been met as evidenced by
the explosion of commercial transactions over the Internet.\8\
The Internet is no longer a nascent development in need of
Federal tax protection to grow. It is now a prosperous sector
of the global economy. Thus, the reasons that initially
warranted a moratorium simply no longer apply.
---------------------------------------------------------------------------
\8\See Exploring Alternative Solutions on the Internet Sales Tax
Issue: Hearing Before the H. Comm. on the Judiciary, 113th Cong.
(2014).
II. LH.R. 3086 Will Devastate State Revenues, Thereby Potentially
Forcing States to Cut Essential Services and Increase Taxes for
Consumers and Businesses
H.R. 3086 will severely impact the immediate revenues for
the grandfather protected states and all states progressively
in the long term. As noted earlier, the CBO estimates that H.R
3086 ``would impose significant annual costs on some state and
local governments''\9\ and far exceed the Unfunded Mandates
Reform Act threshold of $76 million in 2014.\10\ As the CBO
explained, ``the direct costs to states and local governments
would probably total more than several hundred million dollars
annually.'' Not surprisingly, the Federation of Tax
Administrators estimates that H.R. 3086 would lead to at least
$500 million in lost revenue per year from the states that
currently are protected by the grandfather clause.\11\
Specifically, ``[if] the grandfather clause is eliminated,
Texas would be hit the hardest'' losing $358 million a year in
revenue, Wisconsin would lose about $127 million per year, Ohio
would lose about $65 million per year, and South Dakota would
lose about $13 million per year.\12\ Separately, the League of
California Cities and the California State Association of
Counties estimate that the bill would cost California
municipalities over $500 million.\13\
---------------------------------------------------------------------------
\9\Congressional Budget Office Cost Estimate, supra note 2.
\10\The Unfunded Mandates Reform Act is intended to curb the
practice of imposing Federal mandates on state and local governments
without adequate funding. Unfunded Mandates Reform Act of 1995, Pub. L.
No. 104-4, 109 Stat. 48 (1995).
\11\Letter from the Fed'n of Tax Adm'rs President David M. Sullivan
to Rep. Bob Goodlatte, Chair of the H. Comm. on the Judiciary, and Rep.
John Conyers, Jr., Ranking Member of the H. Comm. on the Judiciary
(June 19, 2014) (on file with the H. Comm. on the Judiciary, Democratic
Staff).
\12\Henry J. Reske, Ending Internet Law's Grandfather Clause Could
Cost States $500 Million, TAX ANALYSTS, June 24, 2014.
\13\Letter from the League of Cal. Cities Exec. Dir. Christopher
McKenzie & the Cal. State Ass'n of Counties Exec. Dir. Matt Cate to
Rep. John Conyers, Jr., Ranking Member of the H. Comm. on the Judiciary
(June 17, 2014) (on file with the H. Comm. on the Judiciary, Democratic
Staff).
---------------------------------------------------------------------------
H.R. 3086 will restrain the states' ability to cope with
economic downturns and deficits in several respects. First, the
legislation will deny all states the flexibility to raise
revenue from one sector of the economy. Second, H.R. 3086's
inflexible effective date (November 1, 2014) fails to take into
consideration that it occurs during the grandfather protected
states' fiscal years, and may not give them sufficient time to
adjust their budgetary commitments to take into consideration
the expected revenue losses.\14\ At the markup, Ranking Member
John Conyers, Jr. offered an amendment to extend the moratorium
and the grandfather protections for 4 years, which would have
given sufficient time for state governments to plan
accordingly.\15\ This amendment, however, was defeated.\16\
Third, H.R. 3086 will hinder the states' ability to balance
their budgets, especially the grandfather protected states.
Most states are required, either statutorily or
constitutionally, to balance their state budgets which
typically are based on anticipated revenue and spending for the
fiscal cycle.\17\ When revenue declines or spending increases
during the fiscal cycle, states begin to run a deficit which
means cutting spending or raising taxes.
---------------------------------------------------------------------------
\14\H.R. 3086, Sec. 2(b) (2013).
\15\The Permanent Internet Tax Freedom Act: Markup of H.R. 3086
Before the H. Comm. on the Judiciary, 113th Cong. 11 (June 18, 2014)
(amendment of Ranking Member John Conyers, Jr.).
\16\The amendment failed by a roll call vote of 12-21. Id. at 50.
\17\Nat'l Ass'n of State Budget Officers, Budget Processes in the
States 40 (Summer 2008).
---------------------------------------------------------------------------
If state and local governments choose to cut spending, then
essential government services--such as educating our children,
maintaining needed transportation infrastructure, and providing
essential public health and safety services--will suffer. If
state and local governments choose to raise taxes, then they
would be forced to shift the tax burden onto other taxpayers,
such as retailers, consumers, and homeowners, through increased
property, income, and sales taxes. In sum, H.R. 3086 will
burden taxpayers while excluding an entire industry from paying
their fair share of taxes.
Instead of limiting the tax base for state and local
governments, Congress should be focusing on meaningful ways to
help state and local governments and by extension, taxpayers
and local retailers. One such approach is by passing
legislation that would address the remote sales tax issue. The
Senate has already acted by passing the Marketplace Fairness
Act of 2013.\18\ Under that bill, remote sellers who currently
do not collect sales taxes would be incentivized through free
tax collection software and services to collect the taxes and
remit them to the states in which they are due. That bill would
also require states to simplify several procedures which will
benefit retailers. Such legislation could help states and local
governments collect the over $23 billion in estimated
uncollected sales taxes each year.\19\
---------------------------------------------------------------------------
\18\See H.R. 743, 113th Cong. (2013) (as passed by Senate, May 6,
2013).
\19\See Exploring Alternative Solutions on the Internet Sales Tax
Issue: Hearing Before the H. Comm. on the Judiciary, 113th Cong. 212
(2014) (Written statement of Nat'l Governors Ass'n, et al.).
---------------------------------------------------------------------------
Not only do state and local governments suffer, local
retailers--who have to collect sales taxes--are increasingly
losing to out-of-state businesses that do not collect these
taxes. Retail competitors should be able to compete on a level
playing field with their Internet counterparts at least with
respect to sales tax policy. The House should do its part and
address the remote sales tax disparity before the end of this
Congress.
CONCLUSION
H.R. 3086 is misguided legislation that will devastate
state revenues especially for those states currently protected
by the grandfather clause, could force state governments to
eliminate essential governmental programs and services, and
burden taxpayers. For all of these reasons, we respectfully
dissent.
John Conyers, Jr.
Jerrold Nadler.
Robert C. ``Bobby'' Scott.
Sheila Jackson Lee.
Judy Chu.
David N. Cicilline.
[all]