Senate Finance Committee Passes Internet Tax Freedom Act

(July 29, 1998).  The Senate Finance Committee approved the Internet Tax Freedom Act (ITFA) with amendments on Tuesday morning.  The bill is now ready to be taken up by the full Senate.

Roll Call Votes

1 Kerrey Amendment. Passed 11-9
2 Graham Amendment. Failed 6-13
3 Roth Substitute Bill. Passed 19-1
4 Dorgan Amendment. Failed 10-10
  1 2 3 4
William Roth (R-DE) N N Y N
John Chafee (R-RI) Y N Y N
Chas. Grassley (R-IO) N N Y N
Orrin Hatch (R-UT) N N Y N
Al D'Amato (R-NY) N N Y N
F. Murkowski (R-AK) N N Y N
Don Nickles (R-OK) N N Y N
Phil Gramm (R-TX) N N Y N
Trent Lott (R-MS) N N Y Y
James Jeffords (R-VT) Y N Y N
Connie Mack (R-FL) N N Y N
Pat Moynihan (D-NY) Y Y Y Y
Max Baucus (D-MT) Y Y Y Y
J. Rockefeller (D-WV) Y   Y Y
John Breaux (D-LA) Y Y Y Y
Kent Conrad (D-ND) Y Y Y Y
Bob Graham (D-FL) Y Y N Y
Carol Braun (D-IL) Y Y Y Y
Richard Bryan (D-NV) Y N Y Y
Bob Kerrey (D-NE) Y N Y Y

S 442, and its counterpart which passed the House last month, HR 4105, would impose a temporary ban on new discriminatory taxes on the Internet.

Senate Finance Committee Chairman William Roth (R-DE) offered an amendment in the nature of a substitute.  It ultimately passed by a vote of 19-1, with only Sen. Bob Graham (D-FL) voting against passage.   (See, table at right, column 3.)

However, the votes on other amendments were much closer.  A key amendment was offered by Sen. Bob Kerrey (D-NE).  It reduced the duration of the moratorium from 3 to 2 years, and required that the study of Internet taxation be completed within 18 months, rather than three years.  It passed by a vote of 11 to 9.  (See, column 1.)  It was an almost straight party line vote, with Republicans voting to maintain the 3 year moratorium, and Democrats voting to shorten the ban.  Liberal Republican Senators John Chafee (R-RI) and James Jeffords (R-VT) joined with the Democrats.

The Committee rejected an amendment by 6 to 13 offered by Sen. Graham that would have required out-of-state direct marketers to collect sate and local sales taxes when the company solicits business in the state or delivers products into the state. (See, column 2.)

The Committee also rejected an amended by a 10-10 vote offered by Sen. Kent Conrad (D-ND) that would have amended the Roth substitute "to provide that the moratorium apply only to new taxes imposed on Internet access services delivered after July 28, 1998, and that the moratorium would not impair the ability of any State of  local government to continue collecting taxes on Internet access that were generally imposed and actually enforced under State or local law (including any law of a home-rule community) before July 28, 1998."  (See, column 4.)

The Senate Commerce Committee, which has concurrent jurisdiction over this bill with the Senate Finance Committee, passed a version of the bill with a six year ban on new taxes.  The House of Representatives passed HR 4105, which has a three year ban.

While the bill passed by the Finance Committee shortened the ban to two years, Tech Law Journal could find no congressional staff who would predict that the Senate will ultimately pass a version of the bill with the two year ban.

The twenty member Committee contains eleven Republicans and nine Democrats.  Under the loose rules of the Finance Committee, about one third of the votes were cast on behalf of absent Senators by proxies.  Also, the actual language of the Roth substitute bill, and the three other amendments, was not read or introduced.

The prime backer of the bill in the Senate, Ron Wyden (D-OR), is not a member of Finance Committee, and thus did not participate in Tuesday's markup session.  Rep. Chris Cox (R-CA) and Rep. Rick White (R-WA) are the lead proponents of the bill in the House.

During the debate, Sen. Kerrey spoke against the notion of a protecting Internet trade, but not other retail trade.  He stated:

"There is no evidence that this growth of Internet sales is stunted today, that there is any barrier to sales.  Quite the contrary, the growth of sales is impressive.  What that does, if you put a moratorium on tax on retail sales, what that does is that it means you are going to have a disproportionate burden that is going to fall on normal retail sales.  740 million dollars worth of sales tax apply to transactions within Nebraska, and of that almost 400 on retail trade.  We are offering no moratorium to those individuals.  That tax will continue.  My guess is that if we show the sales growth of normal retail trade versus Internet trade, my guess is that you would see rather substantial growth in Internet trade, and rather modest growth, and in some cases not at all, of growth, in other retail trade.  So, I just don't find that the the evidence to be overwhelmingly on the side of those who are saying that this is a fragile industry in its infancy that deserves special attention because it is struggling to reach its sales chart."

Sen. Chafee added that, "This is not an industry that is in its swaddling clothes."