Senate Passes Leahy-Backed Bill
To Extend The Internet Tax Moratorium,
Sending The Bill To The President’s Desk

WASHINGTON (8:30 p.m. Thurs., Nov. 15) –– The U.S. Senate Thursday night passed and sent to President Bush’s desk a bill that will extend the Internet tax moratorium for another two years. The bill was introduced by Sens. Ron Wyden (D-Ore.), John McCain (R-Ariz.), and Patrick Leahy (D-Vt.), and cosponsored by several others.

Mr. President, I want to add my support to promoting electronic commerce and keeping it free from discriminatory and multiple state and local taxes.

I strongly support the Senate quickly passing H.R. 1552 to extend the Internet tax moratorium for two years.

Last month, I was pleased to join the senior senator from Oregon and the senior senator from Arizona as an original cosponsor of the Internet Tax Moratorium Extension Act, the Senate counterpart to H.R. 1552. I commend Senator WYDEN and Senator MCCAIN for their continued leadership on Internet tax policy.

Although electronic commerce is beginning to blossom, it is still in its infancy. Stability is key to reaching its full potential, and creating new tax categories for the Internet is exactly the wrong thing to do.

E-commerce should not be subject to new taxes that do not apply to other commerce. Indeed, without the current moratorium, there are 30,000 different jurisdictions around the country that could levy discriminatory or multiple Internet taxes on E-commerce.

Let’s not allow the future of electronic commerce -- with its great potential to expand the markets of Main Street businesses -- to be crushed by the weight of discriminatory taxation.

Many Vermont companies have contacted me in the last month weeks in support of extending the moratorium, including Green Mountain Coffee Roasters, the Army & Navy Store in Barre, and the Vermont Teddy Bear Company.

Cyberselling is working for Vermonters.

We also need a national policy to make sure that the traditional state and local sales taxes on Internet sales are applied and collected fairly and uniformly. This two-year extension of the current moratorium gives our governors and state legislatures time to simplify their sales tax rules and reach consensus on a workable national system for collecting sales taxes on E-commerce.

Indeed, the National Conference of State Legislatures has endorsed our legislation to extend the Internet tax moratorium for two more years to give States time to complete work on sales tax simplification.

I must also raise some serious questions about the approach of some Senators to pass legislation to waive Congress’s authority to carefully review and approve interstate compacts. As Chairman of the Senate Judiciary Committee, which has jurisdiction over interstate compacts, I cannot understand why we should recede Congressional authority to approve an interstate compact on sales tax issues if 20 states join any compact. Despite good intentions of its proponents, this approach is asking the Senate to buy a pig in a poke. I am a strong support of interstate compacts where appropriate, such as the Northeast Dairy Compact, but the Senate should not approve of any interstate compact without carefully reviewing its details first. When the Northeast Dairy Compact was approved by the Congress – every detail and every aspect of it was known far in advance.

It also raises constitutional questions for legislation to mandate that Congress automatically approve an interstate compact on sales taxes without reviewing its text since the Constitution explicitly requires Congress to approve interstate compacts.

The Enzi amendment allows 11 jurisdictions to continue to tax Internet access, but permanently bans Internet access taxes everywhere else in the country. By permanently prohibiting taxation of Internet access in some states, but approving of such taxation in other states, the Enzi amendment may violate the "uniformity clause" in Article I, § 8 of the United States Constitution.

The uniformity clause states that "all Duties, Imposts and Excises shall be uniform throughout the United States."

The uniformity clause requires that federal legislation levying taxes follow a consistent plan and apply in all portions of the United States where the subject of the tax is found.

In United States v. Ptasynski, the Supreme Court held that it will subject geographic distinctions in federal taxation to heightened scrutiny. In a unanimous decision, the Court stated that "Where Congress does choose to frame a tax in geographic terms, we will examine the classification closely to see if there is actual geographic discrimination."

The Enzi bill’s proposal to lock in discrimination between states in taxation of Internet access raises questions under the uniformity clause that require careful consideration.

In the case of a temporary moratorium, such as the one in the House bill, the grandfathering of Internet access taxes in a limited number of states may be explained as freezing the status quo while Congress comes up with a permanent solution to the Internet tax issue. Thus, it is unlikely to raise the geographic discrimination problem the Supreme Court discussed in Ptasynski, and would survive heightened scrutiny.

In contrast, the Enzi amendment’s permanent discrimination on the basis of where an Internet user lives is much harder to explain under the heightened scrutiny required by the Supreme Court. If courts treat the federal government’s establishment of a discriminatory regime of taxation by the states as raising the same uniformity clause issues as the federal government’s levying of discriminatory taxes, the Enzi amendment’s Internet access tax moratorium will be ruled unconstitutional.

As a result, this amendment appears to raise serious constitutional concerns.

E-Commerce is growing, our moratorium law is working, and we should keep a good thing going. I am proud to cosponsor the Internet Tax Moratorium Extension Act to encourage online commerce to continue to grow with confidence and to continue to allow the States to move ahead with sales tax simplification efforts.

I urge my colleagues to vote for a straight forward two-year extension of the internet tax moratorium.