Internet Tax Bills in the 107th Congress: A Brief Comparison
CRS Report for Congress
th
Internet Tax Bills in the 107 Congress:
A Brief Comparison
Updated December 6, 2001
Nonna A. Noto
Specialist in Public Finance
Government and Finance Division
Congressional Research Service ˜ The Library of Congress
Internet Tax Bills in the 107 Congress:
A Brief Comparison
Summary
The Internet Tax Freedom Act, enacted in 1998 (in P.L. 105-277), 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 grandfathered the state and local taxes on Internet access that
were in place in 10 states as of October 1, 1998. The original Internet tax
moratorium expired on October 21, 2001. Several bills to extend the moratorium
were introduced in the first session of the 107th Congress. Some bills addressed other
issues related to state and local taxation of the Internet and interstate commerce.
H.R. 1552, the Internet Tax Nondiscrimination Act, passed the House on
October 16, 2001, and the Senate on November 15, 2001, both by voice vote. The
bill was enacted as P.L. 107-75 on November 28, 2001. The Act provided for a
simple 2-year extension of the prior moratorium, until November 1, 2003. It
continued the grandfathering protection for existing Internet access taxes.
The major differences among the bills introduced to extend the Internet tax
moratorium were:
!whether to extend both parts of the moratorium together, either permanently
or temporarily; or
!whether to extend the moratorium on Internet access taxes permanently, while
extending the moratorium on multiple and discriminatory taxes on electronic
commerce temporarily;
!if temporarily, whether the moratorium should be extended for as little as
several months, or for a longer period of 2, 4, or 5 years; and
!whether to continue to grandfather existing Internet access taxes.
Additional issues raised in various bills in conjunction with extending the
moratorium were:
!if, and under what conditions, Congress would authorize the states to require
out-of-state sellers to collect and remit sales and use taxes on interstate sales
of goods and services arranged over the Internet;
!whether to give digital transactions special protection from taxation; and
!whether to codify new nexus standards for state and local business activity
taxes or sales and use taxes.
To help explain which bills addressed which issues, this report provides a side-
by-side comparison of the bills and a brief description of each bill. It also provides a
summary of congressional action on the bill that was enacted. Related hearings and
congressional reports are listed at the end of the report. The report will no longer be
updated.
For further discussion of the underlying issues, see CRS Report RL31177,
Extending the Internet Tax Moratorium and Related Issues, by Nonna A. Noto.
Contents
Overview ...................................................... 1
Action in Congress..............................................2
Summary Explanation of the Tables..................................3
Internet Tax Bills Introduced in the 107th Congress.....................11
House of Representatives.....................................11
H.R. 1410 (Istook)......................................11
H.R. 1552 (Cox), P.L. 107-75.............................11
H.R. 1675 (Cox).......................................11
H.R. 2421 (Stearns).....................................11
H.R. 2526 (Goodlatte and Boucher).........................12
Senate ................................................... 12
S. 246 (Smith, B.)......................................12
S. 288 (Wyden)........................................12
S. 512 (Dorgan)........................................12
S. 589 (Smith, B.)......................................12
S. 664 (Gregg and Kohl).................................13
S. 777 (Allen)..........................................13
S. 1481 (Wyden).......................................13
S. 1504 (Dorgan).......................................13
S. 1525 (Allen).........................................13
S. 1542 (Enzi).........................................13
S. 1567 (Enzi).........................................14
Senate Amendment 2155 (Enzi and Dorgan)..................14
H.R. 1552, P.L. 107-75..................................15
For Additional Information.......................................15th
Hearings in the 107 Congress.................................15
CRS Reports..............................................16
Other Congressional Reports..................................16
List of Tables
Table 1. Comparison of Internet Tax Bills in the House..................5
Table 2. Comparison of Internet Tax Bills in the Senate..................6
th
Internet Tax Bills in the 107 Congress:
A Brief Comparison
Overview
The Internet Tax Freedom Act, enacted in 1998 (in P.L. 105-277), 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 grandfathered the state and local taxes on Internet access that
were in place in 10 states as of October 1, 1998. The original Internet tax
moratorium expired on October 21, 2001. Several bills to extend the moratorium
were introduced in the first session of the107th Congress. Some bills addressed other
issues related to state and local taxation of the Internet and interstate commerce.
H.R. 1552, the Internet Tax Nondiscrimination Act, passed the House on
October 16, 2001, and the Senate on November 15, 2001, both by voice vote. The
bill was enacted as P.L. 107-75 on November 28, 2001. The Act provided for a
simple 2-year extension of the prior moratorium, until November 1, 2003. It
continued the grandfathering protection for existing Internet access taxes.
The major differences among the bills to extend the tax moratorium were:
!whether to extend both parts of the moratorium together, either permanently
or temporarily; or
!whether to extend the moratorium on Internet access taxes permanently, while
extending the moratorium on multiple and discriminatory taxes on electronic
commerce temporarily;
!if temporarily, whether the moratorium should be extended for as little as
several months, or for a longer period of 2, 4, or 5 years; and
!whether to continue to grandfather existing Internet access taxes.
Additional issues raised in various bills were:
!if, and under what conditions, Congress would authorize the states to require
out-of-state sellers to collect and remit sales and use taxes on interstate sales
of goods and services arranged over the Internet;
!whether to give digital transactions special protection from taxation; and
!whether to codify new nexus standards for state and local business activity
taxes or sales and use taxes.
For further discussion of the underlying issues, see CRS Report RL31177,
Extending the Internet Tax Moratorium and Related Issues, by Nonna A. Noto.
Action in Congress
H.R. 1552, the Internet Tax Nondiscrimination Act, was introduced by
Representative Christopher Cox on April 24, 2001. It was approved, as introduced,
by the Subcommittee on Commercial and Administrative Law on August 2, 2001. In
the full House Judiciary Committee, however, the original bill language was replaced
by an amendment in the nature of a substitute. The measure with the committee
substitute was ordered to be reported on October 10, 2001. H.R. 1552, as amended,
passed the House by voice vote, under suspension of the rules, on October 16, 2001.
As passed, the bill provided for a 2-year extension of the prior moratorium, until
November 1, 2003. It continued the grandfathering protection for existing Internet
access taxes.
In the Senate Commerce Committee, an attempt to mark up an Internet tax bill
on May 3, 2001, was cancelled due to lack of consensus on a bill that addressed the
sales and use tax collection issue, in addition to extending the moratorium.1 On the
Senate floor, Senator George Allen’s request for unanimous consent to pass H.R.
1552 was blocked by an objection on October 23, 2001. Senator Byron Dorgan’s
requests to have an alternative bill, S. 1504, passed by unanimous consent were
blocked by objection on October 18 and again on October 23, 2001.2
The Senate considered H.R. 1552 under a unanimous consent agreement on
November 15, 2001. The agreement provided for consideration of one amendment
in the nature of a substitute, S.Amdt. 2155, known as the Enzi-Dorgan amendment.
The amendment addressed the issue of authorizing collection of state and local use
taxes on interstate sales arranged over the Internet, in addition to extending the
moratorium. The Senate debated issues raised in the amendment for over one hour.
Following the debate, the Senate voted to table the amendment by a vote of 57-43.3
Then, by voice vote, the Senate passed H.R. 1552 as received from the House.
Consequently, no conference was needed. President George W. Bush signed the bill
on November 28, 2001. H.R. 1552 became P.L. 107-75.
Both during the debate and after the votes in the Senate, several Senators
expressed their intention to pursue the sales tax simplification and collection issues
raised in the Enzi-Dorgan amendment during the added two years of the moratorium.4
1Two other attempts to hold a mark up during 2000 also were cancelled.
2S. 1504 provided for an 8-month extension of the moratorium, until June 30, 2002. It also
contained a sense of Congress provision supporting simplification of sales and use taxes, to
enable their eventual collection by interstate sellers.
3If the Enzi-Dorgan amendment had not been tabled, Senator Gramm could have offered
S.Amdt. 2156, to increase (from 20) to 25 the number of states that would need to sign the
interstate sales tax compact before it could receive expedited (“fast-track”) consideration by
Congress. For reference to the potential Gramm amendment (text not published), see
Congressional Record, Daily Edition, vol. 147, Nov. 15, 2001, p. S11902.
4Congressional Record, Daily Edition, vol. 147, Nov. 15, 2001; floor debate, pp. S11902-15;
text of amendment, pp. S11963-64.
Summary Explanation of the Tables
Table 1 presents a side-by-side comparison of the bills introduced in the House
and Table 2, the Senate. Table 2 includes S.Amdt. 2155 to H.R. 1552. Following
the tables is a brief description of each bill. In both tables, Column 1 lists the bill
number, sponsor’s name, and congressional action (on H.R. 1552 and S.Amdt. 2155).
Column 2 indicates the bill’s position on extending the moratorium, which has
two components. The first prohibits state or local governments from imposing new
taxes on “Internet access.” The second prohibits them from imposing any “multiple
or discriminatory taxes on electronic commerce.” Some bills would extend both parts
of the moratorium temporarily, ranging from 8 months (S. 1504) to 2 years (H.R.
1552/P.L. 107-75 and S. 1481), 4 years (H.R. 1410/S. 512), or 5 years (S. 246 and
S. 1525). Four bills would make the moratorium on Internet access taxes permanent,
but would extend the moratorium on multiple and discriminatory taxes temporarily,
by 4 years (S. 1542, S. 1567, and S.Amdt. 2155) or 5 years (S. 288). Other bills
would make both parts of the moratorium permanent (H.R. 1675/S. 777, H.R. 2526,
and S. 589).
Column 3 indicates whether the bill would extend the grandfathering provision
which exempts from the ban those state and local taxes on Internet access that were
in place (in 10 states) as of October 1, 1998, just before the original moratorium was
enacted (referred to as existing Internet access taxes). Removing the grandfathering
protection would in effect ban all state and local taxes on Internet access. Four of the
eight bills that propose a permanent ban on Internet access taxes would eliminate the
grandfathering protection for existing taxes on access (H.R. 1675/S. 777, H.R. 2526,
and S. 288). Four others would continue to grandfather. S. 589 would implicitly
extend the grandfathering by simply extending the prior moratorium permanently. S.
1542, S. 1567, and S.Amdt. 2155 would explicitly continue the grandfathering. In
contrast, all seven bills that would temporarily extend both parts of the current
moratorium would implicitly extend the grandfathering provision (H.R. 1410/S. 512,
H.R. 1552/P.L. 107-75, S. 246, S. 1481, S. 1504, and S. 1525).
Column 4 describes other Internet and interstate tax issues addressed by the bills.
Six bills address granting states the authority to require sellers to collect sales and use
taxes on interstate sales. Under three, Congress would have to approve the simplified
sales tax system before granting states collection authority (a “positive trigger”): S.
288, S. 1567, and S.Amdt. 2155. In contrast, under the other three, authority to
require remote sellers to collect use taxes would automatically be granted to states
that signed an interstate compact on streamlined taxes, unless Congress disapproved
(a “negative trigger”): H.R. 1410/S. 512 and S. 1542.
S. 288 would require one sales and use tax rate per state, on within-state as well
as inter-state sales. In contrast, H.R. 1410/S. 512, S. 1542, S. 1567, and S.Amdt.
2155 would permit remote sellers to choose to collect either actual state and local
sales and use tax rates or a uniform statewide rate that could include an average local
rate. In addition, S. 512, S. 1567, and S.Amdt. 2155 provide a third option: states
that adopted the streamlined sales tax system could require remote sellers to collect
the actual state and local sales or use tax rate – if the state provided information on
the rates and granted the seller relief from liability for relying on that information.
Two bills contain a sense of Congress provision encouraging state governments
and interested business organizations to expedite efforts pursuing a simplified tax
system that would not impose an undue burden on interstate commerce. S. 1481
(Wyden) refers to developing “... a streamlined simplified plan for protecting State
revenues affected by Internet use ....” S. 1504 (Dorgan) refers more specifically to
developing “... a streamlined sales and use tax system that, once approved by
Congress, would allow sellers to collect and remit sales and use taxes ....”
S. 1542 (Enzi) and S. 1567 (Enzi) would amend the definition of tax-protected
Internet access to include wireless web access services. To address the concern about
bundling of taxable services, S. 1542, S. 1567, and S.Amdt. 2155 (Enzi-Dorgan)
would define Internet access services to exclude receipt of content or services.
H.R. 2421 (Stearns) would prohibit state or local taxation of commercial
transactions conducted entirely in digital form through the Internet. Two bills would
codify “substantial physical presence” as the new standard for determining interstate
nexus: H.R. 2526 (Goodlatte and Boucher) and S. 664 (Gregg and Kohl). S. 664
lists eight, and H.R. 2526 lists ten, business activities that would not constitute nexus.
S. 664 would apply the new nexus standard to imposing both state business activity
taxes and the duty to collect and remit sales or use taxes on interstate commerce. In
contrast, S. 664 would apply it to business activity taxes only. S. 288 (Wyden)
includes business activity tax nexus standards among the criteria for a simplified tax
system listed in a sense of Congress provision. S. 1542 (Enzi), S. 1567 (Enzi), and
S.Amdt. 2155 (Enzi-Dorgan) contain a sense of Congress provision that legislationth
be enacted by the end of the 107 Congress to determine the factors establishing
business activity tax nexus.
In sum, six bills deal solely with the extension of the Internet tax moratorium:
H.R. 1552 (Cox)/P.L. 107-75, identical bills H.R. 1675 (Cox)/S. 777 (Allen), S. 246
(Smith, B.), S. 589 (Smith, B.), and S. 1525 (Allen).
Six bills would both extend the moratorium and address the issue of providing
states with collection authority for sales and use taxes on interstate sales: H.R. 1410
(Istook)/S. 512 (Dorgan), S. 288 (Wyden), S. 1542 (Enzi), S. 1567 (Enzi), and
S.Amdt. 2155 (Enzi and Dorgan). Two bills would extend the moratorium and
include a sense of Congress provision encouraging states and interested business
organizations to pursue tax simplification: S. 1481 (Wyden) and S. 1504 (Dorgan).
Four bills would extend the moratorium and address business activity tax nexus.
H.R. 2526 (Goodlatte and Boucher) would make the moratorium permanent and
codify new nexus standards for state and local business activity taxes. Three bills
would extend the moratorium and include a sense of Congress provision calling for
legislation to define business activity tax nexus by the end of the 107th Congress: S.
Two bills do not address the extension of the moratorium: H.R. 2421 (Stearns)
and S. 664 (Gregg and Kohl).
Table 1. Comparison of Internet Tax Bills in the House
Bill NumberExtension ofGrandfathering ofOther Internet or
(Sponsor)MoratoriumExisting Internet Interstate Tax Issues
Access Taxes
H.R. 1410 Extends by 4+ImplicitlyOnce 20 states sign an interstate sales and
(Istook)/years, untilextendsuse tax compact and submit it to
December 31, 2005Congress, unless Congress disapproves
S. 512the compact within 120 days, Congress
(Dorgan)would automatically grant any state
joining the compact the authority to
require out-of-state sellers (without nexus)
to collect use taxes from the customer.
The state would be required to adopt a
streamlined sales tax system. Lists tax
simplification criteria. Provides states the
option to require remote sellers to collect
actual state and local sales and use tax
rates or a uniform statewide average rate.
H.R. 1552Makes permanentEliminates–
(Cox) the moratorium on
as introducedInternet access
taxes.
Extends ban on
multiple or
discriminatory taxes
for 5 years, until
H.R. 1552 Extends by 2 years,Implicitly –
(as reported until extends
in House)November 1, 2003
Passed House
by voice vote
on 10/16/01.
Passed Senate
by voice vote
on 11/15/01.
Enacted as
P.L. 107-75
on 11/28/01.
H.R. 1675Makes permanentEliminates–
(Cox)/
S. 777
(Allen)
Bill NumberExtension ofGrandfathering ofOther Internet or
(Sponsor)MoratoriumExisting Internet Interstate Tax Issues
Access Taxes
H.R. 2421– – Would prohibit state or local taxation of
(Stearns)commercial transactions conducted
entirely in digital form through the
Internet. Includes digital goods and
services.
H.R. 2526Makes permanentEliminatesWould establish “substantial physical
(Goodlatte andpresence” as the nexus standard for
Boucher)imposing state and local business activity
taxes. Enumerates 10 business activities
that would not constitute nexus, including
Note: There are two sets of identical bills: H.R. 1410 (Istook))/S. 512 (Dorgan) and H.R. 1675 (Cox)/S. 777
(Allen).
Table 2. Comparison of Internet Tax Bills in the Senate
Bill NumberExtension ofGrandfathering ofOther Internet or
(Sponsor) MoratoriumExisting Internet Interstate Tax Issues
Access Taxes
S. 246 Extends by 5 years,Implicitly–
(Smith, B.)until October 21, 2006extends
S. 288 Makes permanent theEliminatesProvides fast-track authority for
(Wyden)ban on Internet accessCongress to consider a joint
taxes. resolution to give states the authority
to require collection of use taxes if the
Extends by 5+ years,states adequately simplify their sales
until December 31,and use tax systems (“positive
2006, the ban ontrigger”). Lists simplification criteria
multiple andincluding one tax rate per state for all
discriminatory taxes.sales (both within- and inter-state)
and clear standards limiting business
activity tax nexus to sellers with
“continuous and systematic contacts”
with the state.
Bill NumberExtension ofGrandfathering ofOther Internet or
(Sponsor) MoratoriumExisting Internet Interstate Tax Issues
Access Taxes
S. 512 Extends by 4+ years,ImplicitlyCongress would grant a state joining
(Dorgan)/until December 31,extendsan interstate compact the authority to
2005require out-of-state sellers to collect
H.R. 1410use taxes from the customer if the
(Istook)state adopted a streamlined sales tax
system, unless Congress disapproves
the compact (“negative trigger”).
Lists tax simplification criteria.
Provides states the option to require
remote sellers to collect actual state
and local sales and use tax rates or a
uniform statewide average rate.
S. 589Makes permanentImplicitly –
(Smith, B.)extends
S. 664– – Establishes “substantial physical
(Gregg andpresence” as the nexus standard for
Kohl)imposing both state business activity
taxes and the duty to collect and remit
sales or use taxes on interstate
commerce. Enumerates 8 business
activities that do not constitute nexus,
all also listed in H.R. 2526.
S. 777(Allen)/Makes permanentEliminates–
H.R. 1675
(Cox)
S. 1481Extends by 2 years, ImplicitlySense of Congress provision
(Wyden)until October 21, 2003extends encouraging states and business to
expedite efforts to develop a
streamlined simplified plan for
protecting state revenues affected by
Internet use without unnecessarily
burdening interstate commerce.
S. 1504Extends by 8 months,ImplicitlySense of Congress provision
(Dorgan)until June 30, 2002extendsencouraging states and business to
expedite efforts to develop a
streamlined sales and use tax system
that, once approved by Congress,
would allow sellers to collect and
remit sales and use taxes without
imposing an undue burden on
interstate commerce.
S. 1525Extends by 5 years,Implicitly –
(Allen)until October 21, 2006extends
Bill NumberExtension ofGrandfathering ofOther Internet or
(Sponsor) MoratoriumExisting Internet Interstate Tax Issues
Access Taxes
S. 1542Makes permanent theExtendsAs in S. 512, Congress would grant a
(Enzi)ban on new Internetstate joining an interstate compact the
access taxes.authority to require out-of-state
sellers to collect use taxes from the
Extends by 4+ years,customer if the state adopted a
until December 31,streamlined sales tax system, unless
2005, the ban onCongress disapproves the compact
multiple and(“negative trigger”). Lists tax
discriminatory taxes.simplification criteria. Offers remote
sellers the option to choose to collect
either actual state and local use tax
rates or a uniform statewide average
rate.
New provisions: Defines Internet
access to include wireless web access
services and Internet access services
to exclude receipt of content or
services (to address bundling
concerns). Sense of Congress
provision that legislation be enactedth
by the end of the 107 Congress to
determine the factors establishing
business activity tax nexus, and that
vendor costs of sales tax collection be
studied.
Bill NumberExtension ofGrandfathering ofOther Internet or
(Sponsor) MoratoriumExisting Internet Interstate Tax Issues
Access Taxes
S. 1567 Makes permanent theExtendsIncludes more detailed provisions
(Enzi)ban on new Internetthan S. 288 providing expedited
access taxes. procedure for Congress to consider a
joint resolution to give states the
Extends by 4+ years,authority to require collection of use
until December 31,taxes if the states adequately simplify
2005, the ban ontheir sales and use tax systems and
multiple andadopt an interstate compact (“positive
discriminatory taxes.trigger”). As in S. 512 and S. 1542,
provides states the option to require
remote sellers collect actual state and
local sales and use tax rates or a
uniform statewide average rate. Lists
same tax simplification criteria as S.
Like S. 1542: Defines Internet access
to include wireless web access
services and Internet access services
to exclude receipt of content or
services (to address bundling
concerns). Sense of Congress
provision that legislation be enactedth
by the end of the 107 Congress to
determine the factors establishing
business activity tax nexus, and that
vendor costs of sales tax collection be
studied.
Bill NumberExtension ofGrandfathering ofOther Internet or
(Sponsor) MoratoriumExisting Internet Interstate Tax Issues
Access Taxes
S.Amdt. 2155Makes permanent theExtendsLike S. 1567, with a few changes:
(Enzi-Dorgan)ban on new InternetDrops definition of Internet access
to H.R. 1552access taxes. and references to wireless web access
services. Adds two criteria for a
Tabled by voteExtends by 4+ years,streamlined sales tax system.
of 57-43 until December 31,
on 11/15/01.2005, the ban onDefines “Internet access services” to
multiple andnot include receipt of content or
discriminatory taxes.services. Lists 14 criteria for a
streamlined sales and use tax system.
Provides an expedited (“fast-track”)
procedure for Congress to consider a
joint resolution to give states the
authority to require collection of use
taxes if the states adequately simplify
their sales and use tax systems and
adopt an interstate compact (“positive
trigger”).
Provides states joining the compact
the alternative of requiring remote
sellers to collect actual state and local
sales and use tax rates under certain
conditions, and sellers the option to
voluntarily elect to collect actual state
and local tax rates – or to collect a
uniform statewide tax rate, not to
exceed the weighted average of actual
tax rates across the state.
Sense of Congress provision that
legislation be enacted by the end ofth
the 107 Congress to determine the
factors establishing business activity
tax nexus, and that vendor costs of
sales tax collection be studied.
H.R. 1552Extends by 2 years,Implicitly–
(as passed byuntil extends
House onNovember 1, 2003.
Passed Senate
by voice vote on
Enacted as
P.L. 107-75
on 11/28/01.
Internet Tax Bills Introduced in the 107th Congress
House of Representatives
H.R. 1410 (Istook). Internet Tax Moratorium and Equity Act. Identical to S. 512
(Dorgan). Would extend the moratorium by 4 years and some months, until December 31,
2005. Enumerates the conditions under which Congress would automatically grant a state
the authority to require out-of-state sellers (without nexus) to collect the use tax from the
customer and remit it to the state, unless Congress took action within 120 days to
disapprove the Interstate Sales and Use Tax Compact, which is to be drafted and adopted
by the states. Would preserve the option for remote sellers to choose to collect either
actual state and local use tax rates or a uniform statewide average rate. Under an alternate
system, a state that adopted the streamlined sales tax system could require remote sellers
to collect the actual state and local sales or use tax rate – if the state provided information
on the rates and granted the seller relief from liability for relying on that information.
Introduced April 4, 2001. Referred to the Committee on the Judiciary.
H.R. 1552 (Cox), P.L. 107-75. Internet Tax Nondiscrimination Act. As amended
in the full Judiciary Committee and passed by the House, H.R. 1552 simply extended the
prior moratorium by 2 years, until November 1, 2003. (As originally introduced and
reported by the subcommittee, H.R. 1552 would have made the moratorium on Internet
access taxes permanent and removed the grandfathering protection for existing Internet
access taxes. Would have extended the moratorium on multiple or discriminatory taxes
on electronic commerce by 5 years and some months, until December 31, 2006.)
Introduced April 24, 2001. Referred to the Committee on the Judiciary. Reported by the
Subcommittee on Commercial and Administrative Law on August 2, 2001. Amended and
ordered reported by the Judiciary Committee on October 10, 2001 (H.Rept. 107-240).
Considered by the House under suspension of the rules and passed by voice vote on
October 16, 2001.
Senator George Allen’s request that the Senate pass H.R. 1552 by unanimous consent
was blocked by an objection on October 23, 2001. The bill was considered under a
unanimous consent agreement and passed the Senate, without further amendment, by voice
vote on November 15, 2001. It was enacted as P.L. 107-75 on November 28, 2001.
H.R. 1675 (Cox). Internet Tax Nondiscrimination Act. Identical to S. 777 (Allen).
Would make the moratorium permanent on both Internet access taxes and multiple or
discriminatory taxes on electronic commerce. Would remove the grandfathering
protection for existing Internet access taxes. Introduced May 2, 2001. Referred to the
Committee on the Judiciary.
H.R. 2421 (Stearns). Jurisdictional Certainty Over Digital Commerce Act. Would
reserve to the federal government the authority to regulate digital commercial transactions
and prohibit any state or local government regulation. In effect, this would prohibit state
or local taxation of commercial transactions conducted entirely in digital form through the
Internet. Digital commerce is defined to include both digital goods and digital services,
and to exclude telecommunications services and the business of insurance. Introduced
June 28, 2001. Referred to the Committee on Energy and Commerce and the Committee
on the Judiciary.
H.R. 2526 (Goodlatte and Boucher). Internet Tax Fairness Act of 2001.
Would make permanent the moratorium on both Internet access taxes and multiple and
discriminatory taxes on electronic commerce. Would remove the grandfathering
protection for existing Internet access taxes. In addition, H.R. 2526 would set
jurisdictional standards for the imposition of state and local business activity taxes on
interstate commerce. The bill enumerates 10 business activities that would not establish
“substantial physical presence” (a new term) for determining nexus, including two not
listed in S. 664 (Gregg and Kohl). A few of these business practices involve use of the
Internet, but most involve other more traditional types of business relationships. Under
H.R. 2526 the new nexus standards would apply only to business activity taxes, unlike
under S. 664, which would apply the new nexus standards to sales and uses taxes as well
as business activity taxes. Introduced July 17, 2001. Referred to the Committee on the
Judiciary.
Senate
S. 246 (Smith, B.). Would extend the moratorium by 5 years, until October 21,
and Transportation.
S. 288 (Wyden). Internet Tax Nondiscrimination Act. Would make permanent the
moratorium on Internet access taxes and remove the grandfathering protection for existing
Internet access taxes. Would extend the moratorium against multiple and discriminatory
taxes on electronic commerce by 5 years and some months, until December 31, 2006.
Would encourage states to simplify their sales and use taxes. Would provide fast-track
procedure for Congress to consider passing a joint resolution permitting states to require
vendors to collect use taxes, if the states met tax-simplification criteria enumerated in the
bill (called a “positive trigger”). Calls for one tax rate per state, for all sales, both within-
state and interstate. Calls for clear standards limiting business activity tax nexus to sellers
that have “continuous and systematic contacts” with the state. Introduced February 8,
S. 512 (Dorgan). Internet Tax Moratorium and Equity Act. Identical to H.R. 1410
(Istook). Would extend the moratorium by 4 years and some months, until December 31,
2005. Enumerates the conditions under which Congress would automatically grant a state
the authority to require out-of-state sellers (without nexus) to collect the use tax from the
customer and remit it to the state, unless Congress took action within 120 days to
disapprove the Interstate Sales and Use Tax Compact (called a “negative trigger”). The
compact is to be drafted and adopted by the states. Would preserve the option for remote
sellers to choose to collect either actual state and local use tax rates or a uniform statewide
average rate. Under an alternate system, a state that adopted the streamlined sales tax
system could require remote sellers to collect the actual state and local sales or use tax rate
– if the state provided information on the rates and granted the seller relief from liability
for relying on that information. Introduced March 9, 2001. Referred to the Committee
on Finance.
S. 589 (Smith, B.). Would make the moratorium permanent, including the
grandfathering protection for existing Internet access taxes. Introduced March 21, 2001.
Referred to the Committee on Commerce, Science, and Transportation.
S. 664 (Gregg and Kohl). New Economy Tax Fairness (NET FAIR) Act. Would
establish “substantial physical presence” as the nexus standard for imposing both state
business activity taxes and the duty to collect and remit sales or use taxes on interstate
commerce. Enumerates eight business activities that would not constitute substantial
physical presence. (These eight activities are included among the 10 listed in H.R.2526,
which applies to business activity taxes only.) Introduced March 29, 2001. Referred to
the Committee on Finance.
S. 777 (Allen). Internet Tax Nondiscrimination Act. Identical to H.R. 1675 (Cox).
Would make permanent the moratorium on both Internet access taxes and multiple or
discriminatory taxes on electronic commerce. Would remove the grandfathering
protection for existing Internet access taxes. Introduced April 25, 2001. Referred to the
Committee on Commerce, Science, and Transportation.
S. 1481 (Wyden). Internet Tax Moratorium Extension Act. Would extend the
moratorium for 2 years, until October 21, 2003. Expresses the sense of Congress that “...
State governments and interested business organizations should expedite efforts to develop
a streamlined simplified plan for protecting State revenues affected by Internet use without
unnecessarily burdening interstate commerce.” Introduced October 2, 2001. Referred to
the Committee on Commerce, Science, and Transportation.
S. 1504 (Dorgan). Internet Tax Moratorium Extension Act. Would extend the
moratorium for 8 months, until June 30, 2002. Expresses the sense of Congress that “...
State governments and interested business organizations should expedite efforts to develop
a streamlined sales and use tax system that, once approved by Congress, would allow
sellers to collect and remit sales and use taxes without imposing an undue burden on
interstate commerce.” Introduced October 4, 2001. Referred to the Committee on
Commerce, Science, and Transportation. Senator Dorgan’s requests to have the bill
passed by unanimous consent were blocked by an objection on October 18 and again on
October 23, 2001.
S. 1525 (Allen). Defense of Internet Tax Freedom Act. Would extend the
moratorium for 5 years, until October 21, 2006. Introduced October 10, 2001. Referred
to the Committee on Commerce, Science, and Transportation.
S. 1542 (Enzi). Internet Tax Moratorium and Equity Act. Built upon S. 512
(Dorgan), with some elements of S. 288 (Wyden). Would make permanent the ban on
new Internet access taxes, but would continue to grandfather existing access taxes. Would
extend the moratorium on multiple and discriminatory taxes by 4 years and some months,
until December 31, 2005. Enumerates the conditions under which Congress would
automatically grant a state the authority to require out-of-state sellers (without nexus) to
collect the use tax from the customer and remit it to the state, unless the Congress took
action within 120 days to disapprove the Interstate Sales and Use Tax Compact, which is
to be drafted and adopted by the states. Preserves the option offered in S. 512 to have
remote sellers choose to collect either actual state and local use tax rates or a uniform
statewide average rate (but does not include the alternative system of a state being able to
require collection of actual state and local rates).
New elements: Amends definition of Internet access to include wireless web access
services, while excluding telecommunications services generally. Defines Internet access
services to exclude receipt of content or services (to address the concern about bundling
taxable services with tax-protected Internet access). Recommends a joint government-
business study of the cost of collecting and remitting sales and use taxes for all sellers
under current law and the proposed new system – to help determine reasonable vendor
compensation. Contains a sense of Congress provision that legislation be enacted by the
end of the 107th Congress to determine the factors establishing business activity tax nexus.
Introduced October 11, 2001. Referred to the Committee on Health, Education, Labor,
and Pensions.
S. 1567 (Enzi). Internet Tax Moratorium and Equity Act. Adapts S. 1545 (Enzi),
which was built largely upon S. 512 (Dorgan), to reach greater compromise with S. 288
(Wyden). Like S. 1545, would make permanent the ban on new Internet access taxes, but
would continue to grandfather existing access taxes. Would extend the moratorium on
multiple and discriminatory taxes by 4 years and some months, until December 31, 2005.
Amends definition of Internet access to include wireless web access services, while
excluding telecommunications services generally. Defines Internet access services to
exclude receipt of content or services (to address the concern about bundling taxable
services with tax-protected Internet access). Recommends a joint government-business
study of the cost of collecting and remitting sales and use taxes for all sellers – under
current law and the proposed new system – to help determine reasonable vendor
compensation. Contains a sense of Congress provision that legislation be enacted by the
end of the 107th Congress to determine the factors establishing business activity tax nexus.
Includes more detailed provisions than S. 288 providing expedited procedure for
Congress to consider a joint resolution to give states the authority to require remote sellers
to collect and remit sales and use taxes (“positive trigger”). The states would have to
adequately simplify their sales and use tax systems and adopt an interstate compact. As
in S. 512 and S. 1542, S. 1567 preserves the option to have remote sellers choose to
collect either actual state and local use tax rates or a uniform statewide average rate. In
addition, as in S. 512 (but not S. 1542), a state that adopted the streamlined sales tax
system could require remote sellers to collect the actual state and local sales or use tax rate
– if the state provided information on the rates and granted the seller relief from liability
for relying on that information. Lists the same tax simplification criteria found in S. 512
and S. 1542; many are similar to those in S. 288. Introduced October 18, 2001. Referred
to the Committee on Commerce, Science, and Transportation.
Senate Amendment 2155 (Enzi and Dorgan). S.Amdt. 2155; Known as the
Enzi-Dorgan amendment. Based on S. 1567, the second bill introduced by Senator Mike
Enzi that tried to reach a compromise between S. 288 (Wyden) and S. 512 (Dorgan).
Offered on the floor of the Senate on November 15, 2001, as an amendment in the nature
of a substitute to H.R. 1552. One hour of debate on the amendment was permitted under
the unanimous consent agreement governing consideration of H.R. 1552. Tabled by a
vote of 57-43 on November 15, 2001.
Contains some changes to S. 1567 (Enzi). Drops definition of Internet access and
references to wireless web access services. Keeps new definition of Internet access
services to not include receipt of content or services. Adds two criteria for streamlined
system: (13) uniform enforcement criteria and a process for ensuring compliance by states
adopting the streamlined system; and (14) a process for resolving conflicts of law among
states in implementing the system.
Would extend the moratorium on multiple and discriminatory taxes by 4 years and
some months, until December 31, 2005. Would place a permanent ban on new Internet
access taxes but continue to grandfather existing access taxes. To address the concern
about the bundling of taxable services with tax-protected Internet access, would define
Internet access services to exclude the receipt of content or services. To address the
concerns about business activity tax nexus, contains a sense of Congress provision that
legislation be enacted by the end of the 107th Congress to determine the factors
establishing business activity nexus.
With regard to authorizing sales tax collection, includes an expedited (“fast track”)
procedure for Congress to consider a joint resolution to give states the authority to require
sellers to collect use taxes if the states adequately simplified their sales and use tax systems
and adopted an interstate compact, based on the proposal in S. 288 (Wyden). (The
requirement for Congress to actively approve the simplified sales tax system is referred to
as a “positive trigger.”)
Drawing from S. 512 (Dorgan), offers the option for remote sellers to collect either
actual state and local use tax rates or a uniform statewide average rate. Under an alternate
system, a state that adopted the streamlined sales tax system could require remote sellers
to collect the actual state and local sales or use tax rate – if the state provided information
on the rates and granted the seller relief from liability for relying on that information. In
a sense of Congress provision, enumerates 14 specific features to be addressed in
developing a streamlined sales and use tax system. Recommends a joint government-
business study of the cost of collecting and remitting sales and use taxes for all sellers
(local and remote) under both current law and the proposed new system – to help
determine reasonable vendor compensation.
H.R. 1552, P.L. 107-75. Internet Tax Nondiscrimination Act. Extends the prior
moratorium by two years, until November 1, 2003. The Senate passed the bill received
from the House, by voice vote, on November 15, 2001, after S.Amdt. 2155 (Enzi) was
tabled. Enacted as P.L. 107-75 on November 28, 2001.
For Additional Information
Hearings in the 107th Congress
U.S. Congress. House. Committee on the Judiciary. Subcommittee on Commercial and
Administrative Law. Internet Tax Nondiscrimination Act. Hearing on H.R. 1552thst
and H.R. 1675. Serial No. 26, 107 Congress, 1 session, June 26, 2001.
Washington: U.S. Govt. Print. Off., 2001.
––– Internet Tax Moratorium and Equity Act. Hearing on H.R. 1410. Serial No. 31,thst
––– Hearing on H.R. 2526. 107th Congress, 1st session, September 11, 2001. Interrupted
by terrorist attacks.
U.S. Congress. Senate. Committee on Commerce, Science, and Transportation. Hearing
on Extension of the Internet Tax Moratorium. 107th Congress, 1st session, March 14,
––– Committee on Finance. Cybershopping and Sales Tax: Finding the Right Mix.
Hearing. 107th Congress, 1st session, August 1, 2001. [Proceedings not yet
published.]
CRS Reports
CRS Report RL31177. Extending the Internet Tax Moratorium and Related Issues, by
Nonna A. Noto.
CRS Report RL30667. Internet Tax Legislation: Distinguishing Issues, by Nonna A.th
Noto. (Analyzes the bills in the 106 Congress.)
CRS Report RL30412. Internet Taxation: Bills in the 106th Congress, by Nonna A. Noto.
CRS Report 98-509 E. Internet Tax Bills in the 105th Congress, by Nonna A. Noto.
CRS Report RL30431. Internet Transactions and the Sales Tax, by Steve Maguire.
CRS Report RS20577. State Sales Taxation of Internet Transactions, by John R. Luckey.
Other Congressional Reports
U.S. Congress. House. Internet Tax Nondiscrimination Act. Report to Accompany
H.R. 1552, Including Cost Estimate of the Congressional Budget Office. H.Rept.
U.S. Congress. Joint Committee on Taxation. Overview of Issues Related to the Internet
Tax Freedom Act and of Proposals to Extend or Modify the Act. Scheduled for a
Hearing Before the Senate Committee on Finance on August 1, 2001. JCX-64-01,thst
U.S. Congressional Budget Office. Economic Analysis of Taxing Internet and Other
Remote Sales. Statement of G. Thomas Woodward, Assistant Director for Tax
Analysis. CBO Testimony before the U.S. Senate, Committee on Finance. August
U.S. General Accounting Office. Sales Taxes: Electronic Commerce Growth Presents
Challenges; Revenue Losses Are Uncertain. GAO report GGD/OCE-00-165.
Washington, June 30, 2000.