Skip to content

Washington, D.C. – U.S. Senator Mike Enzi, R-Wyo., introduced a bill this week that he believes will both keep businesses that depend on e-commerce healthy and protect precious local and state government sales tax revenue.

The following is the text of a statement he issued when he introduced his bill, S. 1542, yesterday. If you would like the text of the 11-page bill e-mailed or faxed to you, feel free to e-mail or call Sen. Enzi's press office.

Click to view text of this legislation in pdf format (requires Adobe Acrobat)

OCTOBER 11, 2001

Mr. ENZI. Mr. President, I rise to introduce the Internet Tax Moratorium and Equity Act. I encourage each of my colleagues to join me as a cosponsor of this bill. With the extension of the current moratorium of the Internet Tax Freedom Act of 1998 expiring soon on October 21, 2001, there are several bills that are currently being discussed in the Senate in order to address this issue. I had to take a look at the Internet sales tax issue for people who might be using legislative vehicles to develop huge loopholes in our current system. We are federally mandating states into a sales tax exemption. We need to preserve the system for those cities, towns, counties, and states that rely on the ability to collect the sales tax they are currently getting. I believe that the current moratorium on Internet access taxes and multiple and discriminatory taxes on the Internet should not be extended without addressing the larger issue of sales and use tax collection on electronic commerce.

There are some critical issues here that have to be solved to keep the stability of state and local government--just the stability of it--not to increase sales tax, just protect what is there right now. I believe the Internet Tax Moratorium and Equity Act is a monumental step forward in protecting, yet enhancing, the current system.

Certainly, no Senator wants to take steps that will unreasonably burden the development and growth of the Internet. At the same time, we must also be sensitive to issues of basic competitive fairness and the negative effect our action or inaction can have on brick-and-mortar retailers, a critical economic sector and employment force in all American society, especially in rural states like Wyoming. In addition, we must consider the legitimate need of state and local governments to have the flexibility they need to generate resources to adequately fund their programs and operations.

As the only accountant in the Senate, I have a unique perspective on the dozens of tax proposals that are introduced in Congress each year. In addition, my service on the state and local levels and my experiences as a small business owner enable me to consider these bills from more than one viewpoint.

I understand the importance of protecting and promoting the growth of Internet commerce because of its potential economic benefits. It is a valuable resource because it provides access on demand. In addition, it is estimated that the growth of online businesses will create millions of new jobs nationwide in the coming years. Therefore, I do not support a tax on the use of Internet itself.

I do, however, have concerns about using the Internet as a sales tax loophole. Sales taxes go directly to state and local governments and I am very leery of any federal legislation that bypasses their traditional ability to raise revenue to perform needed services such as school funding, road repair and law enforcement. I will not force states into a huge new exemption. While those who advocate a permanent loophole on the collection of a sales tax over the Internet claim to represent the principles of tax reduction, they are actually advocating a tax increase. Simply put, if Congress continues to allow sales over the Internet to go untaxed and electronic commerce continues to grow as predicted, revenues to state and local governments will fall and property taxes will have to be increased to offset lost revenue or states who do not have or believe in state income taxes will be forced to start one.

Furthermore, State and local revenues and budgets are especially critical now as these governments are responding to protect the security of all of our citizens and businesses. Any action to extend the current moratorium without creating a level playing field would perpetuate a fundamental inequity and ignore a growing problem that will gravely affect the readiness of the nation.

After months of hard work, negotiations, and compromise, the Internet Tax Moratorium and Equity Act has been introduced. I would like to commend several of my colleagues for their commitment to finding a solution and working with all parties to find that solution. I know this bill is the solution. The bill makes permanent the existing moratorium on Internet access taxes, but extends the current moratorium on multiple and discriminatory taxes for an additional four years through December 31, 2005.

Throughout the past several years, we have heard that catalog and Internet companies say they are willing to allow and collect sales tax on interstate sales (regardless of traditional or Internet sales) if states will simplify collections to one rate per state sent to one location in that state. I think that is a reasonable request. I have heard the argument that computers make it possible to handle several thousand tax entities, but from an auditing standpoint as well as simplicity for small business, I support one rate per state. I think the states should have some responsibility for redistribution not a business forced to do work for government. Therefore, the bill would put Congress on record as urging states and localities to develop a streamlined sales and use tax system, which would include a single, blended tax rate with which all remote sellers can comply. You need to be aware that states are prohibited from gaining benefit from the authority extended in the bill to require sellers to collect and remit sales and use taxes on remote sales if the states have not adopted the simplified sales and use tax system.

Further, the bill would authorize states to enter into an Interstate Sales and Use Tax Compact through which members would adopt the streamlined sales and use tax system. Congressional authority and consent to enter into such a compact would expire if it has not occurred by January 1, 2006. The bill also authorizes states to require all other sellers to collect and remit sales and use taxes on remote sales unless Congress has acted to disapprove the compact by law within a period of 120 days after the Congress receives it.

The bill also calls for a sense of the Congress that before the end of the 107th Congress, legislation should be enacted to determine the appropriate factors to be considered in establishing whether nexus exists for State business activity tax purposes.

I am introducing this bill today because I do not think there is adequate protection now. It is very important we do not build electronic loopholes on the Internet, an ever-changing Internet, one that is growing by leaps and bounds, one that is finding new technology virtually every day.

Mr. President, I recognize this body has a constitutional responsibility to regulate interstate commerce. Furthermore, I understand the desire of several senators to protect and promote the growth of Internet commerce. Internet commerce is an exciting field. It has a lot of growth potential. The new business will continue to create millions of new jobs in the coming years.

The exciting thing about that for Wyomingites is that our merchants do not have to go where the people are. For people in my state, that means their products are no longer confined to a local market. They do not have to rely on expensive catalogs to sell merchandise to the big city folks. They do not have to travel all the way to Asia to display their goods. The customer can come to us on the Internet. It is a remarkable development, and it will push more growth for small manufacturers in rural America, especially in my state. We have seen some of the economic potential in the Internet and will continue this progress. It is a valuable resource because it provides access on demand. It brings information to your fingertips when you want it and how you want it.

I am very concerned, however, with any piece of legislation that mandates or restricts State and local governments' ability to meet the needs of its citizens. This has the potential to provide electronic loopholes that will take away all of their revenue. The Internet Tax Moratorium and Equity Act would designate a level playing field for all involved - business, government, and the consumer.

The states, and not the federal government, should have the right to impose, or not to impose, consumption taxes as they see fit. The reality is that emergency response personnel, law enforcement officials, and other essential services are funded largely by states and local governments, especially through sales taxes. Passing an extension of the current moratorium without taking steps toward a comprehensive solution would leave many states and local communities unable to fund their services. I urge my colleagues to support it. I yield the floor.