Sen. Joe Lieberman Press Release
March 31, 1998
(This document has been edited for html, but not for content.)
SPECIAL ATTENTION: Internet/tax moratorium
WASHINGTON -- Calling the Internet "the most advanced vision in tailor-made economics our world has ever seen," Senator Joe Lieberman joined today with Senator Judd Gregg of New Hampshire to introduce legislation that would establish a three-year moratorium on state or local taxation of Internet sales and services and establish a national Commission to study related taxation issues.
"If the Internet is taxed prematurely -- without knowing who, why and how any taxes are measured, counted and pocketed -- oh, what a tangled Web we'd weave" Lieberman said. "Electronic commerce still needs to be understood by consumers, refined in the marketplace, and otherwise nurtured by entrepreneurs before 30,000 taxation jurisdictions in the United States get into the picture."
The legislation, entitled The Internet Fairness and Interstate Responsibility Act -- or Net FAIR -- proposes a three-year moratorium on state or local taxation of the Internet or Internet-related activities but preserves broad-based state and local taxing authority. Net FAIR would also establish a formal Commission that would meet during the first two years of the moratorium and issue a report to the Congress and the President.
The Net FAIR Commission would survey existing taxation laws and proposals and propose model legislation regarding commercial transactions on the Internet. The intent would be for states to unify their treatment of Internet and Internet-related activities with a uniform set of terms and definitions. The Commission would have 15 members: 3 U.S. secretaries of Commerce, State and Treasury; 3 governors; 3 local officials; 3 business persons from computer- or Internet-related companies; and, 3 business persons from electronic commerce companies. Commission recommendations would require at least 10 votes for approval.
The following is the complete text of Lieberman's prepared remarks at the Capitol news conference at which Net FAIR was introduced:
"In the space of a very few years, the Internet has become a powerhouse of personal communications and economic growth. It will soon be as indispensable as a telephone, television and credit card in our daily lives, and certainly in the lives of our children. With all this going for the information superhighway, a bit of reality was bound to slow the traffic sooner or later. It now has. The taxman cometh. There are today many proposals to tax sales and services made on-line.
"The legislation Senator Gregg and I are introducing today does not say that sales taxes should be forever banned from the Net. What we do say is that if the Internet is taxed prematurely -- without knowing who, why, and how any taxes are measured, counted and pocketed -- oh, what a tangled Web we'd weave.
"The telecommunications Big Bang that created Internet marketing is still in its economic infancy. Electronic commerce still needs be understood by consumers, refined in the marketplace, and otherwise nurtured by entrepreneurs before 30,000 taxation jurisdictions in the United States get into the picture. And that's all that we are asking in the Internet Fairness and Interstate Responsibility Act -- or Net FAIR. We're asking for a reasonable three-year moratorium on taxation, as well as fairness, consistency and simplicity in any system of taxation developed after careful study.
"The Internet is the most advanced vision in tailor-made economics our world has ever seen. The Net allows large businesses to increase customer service while decreasing costs without decreasing access to the company. It allows small businesses to expand and grow beyond the local community without making business trips they can't afford. It empowers individual consumers to get information and make decisions at any hour of the day or night, and after any manner of research.
"The Internet is also offering the United States a unique advantage in international trade. We are today the world's leader in global Internet sales. Every day, American companies receive orders from overseas customers who saw an American Web page, liked what they saw, and placed an order over the Net. One possible outcome of taxing domestic sales too soon and too indiscriminately might be to raise bottom-line costs to Net businesses and snuff out some of our international sales leadership in the process. This is just one example of why we must be careful, thoughtful, and fair.
"Approximately 7,000 state, county and city jurisdictions charge a sales tax in the United States. Of these, 634 either changed existing rates or added new sales taxes last year. Would every business with a Web page need to keep up with those changes? If you are running a business in Connecticut, receive an order from Kansas, and send a confirmation that goes through a server in Illinois, who taxes the sale? Connecticut? Kansas? Illinois? All three? Local cities, too?
"Fortunately, we have statutes on the books that deal with interstate mazes like this. A problem may be that the definitions in those statutes just don't apply explicitly -- yet -- to the Internet because cyberspace was a world unimagined when most of those laws were written. For example, one centerpiece of tax law prohibits states from requiring a business to collect sales taxes in another state unless that business has a physical presence there. This law is used millions of times each day by telemarketers and mail order houses throughout the country. And that's what we believe we will need eventually when it comes to the Internet: simple laws based on existing laws and practices. We don't need new laws on how to collect new and more taxes. We need Net FAIR.
"Net FAIR proposes to update and simplify our tax regulations. We call for the same three-year moratorium on Internet-only sales taxes that the National Governors Association has said it favors. Net FAIR includes a Commission to develop a uniform system of definitions and treatment by the states of Internet sales and services so that businesses and consumers alike would always know what they're responsible for no matter where they are. The Commission members would be chosen from Federal, state and local governments; from Internet- related businesses; and from electronic commerce companies, including mail order. In short, Net FAIR would help create continued economic growth in Internet sales by making certain that everyone knows the rules and that everyone has a say in making them.
"In Norwalk, Connecticut, there's a company called Micro Warehouse. They sell computer hardware, software and related materials over the Internet. They started out ten years ago with just eight employees. They now employ more than 4,000 people world-wide and have annual sales of more than $2 billion. Obviously, their good fortune has helped many people and our economy as the world of cyberspace has grown.
"America's economy is, as President Franklin Roosevelt said three generations ago, no longer ‘relegated to the horse-and-buggy definition of interstate commerce.' Micro Warehouse is proof of that. What has also been proven, many times over, is that taxation applied too soon or unfairly is often harmful and counterproductive. That most certainly would be true in the fast-paced age of the Internet, and why I believe we need the pause and thoughtfulness that Net FAIR would bring."