Internet Tax Nondiscrimination Act

INTERNET TAX NONDISCRIMINATION ACT -- (House of Representatives - November 19, 2004)

Mr. SENSENBRENNER. Mr. Speaker, I move to suspend the rules and pass the Senate bill (S. 150) to make permanent the moratorium on taxes on Internet access and multiple and discriminatory taxes on electronic commerce imposed by the Internet Tax Freedom Act.

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Mr. PICKERING. Mr. Speaker, I rise today for two reasons: First, to support S. 150, "The Internet Tax Nondiscrimination Act," and, second, to clarify a mischaracterization of a provision of S. 150 that has appeared in the media and perhaps in the minds of some of my colleagues concerning the affect of S. 150 on Voice over Internet Protocol or VoIP.

First, I support passage of S. 150 and commend my colleagues in both the House and the Senate for working vigorously to forge a compromise that addresses, albeit in a temporary fashion, the most important issue we face today concerning what's been termed the "digital divide"-bridging the gap between those who have Internet access and those who do not by protecting such access for all Americans from overburdensome taxation by a multiplicity of State and local governments that would directly and substantially inhibit the growth and expansion of this still relatively young technology. This bill extends until November 2007 the current moratorium that prohibits States, or their political subdivisions, from taxing Internet access or imposing multiple or discriminatory taxes on electronic commerce. Both houses of Congress also compromised on the treatment of States who had been taxing Internet access even before 1998 when Congress passed the Internet Tax Freedom Act. The grandfathered status of those States to continue taxation of Internet access will be extended for 3 more years under S. 150. While I support the compromise we are voting on today because it accomplishes our intent to prohibit State and local taxation of Internet access in the interim, I still firmly believe that we should permanently prohibit State taxation of Internet access in the future. However, I do look forward to working with our State, county, and city leaders in the future to address the broader issue of taxation of goods and services over the Internet. Everyone recognizes that the Internet knows no borders, domestically or globally, and we should treat it as such by permanently prohibiting an estimated 30,000 different jurisdictions nationwide from imposing taxes on Internet access and stifling this innovative technology that has become not only a useful informational, educational, and recreational technology for most Americans but also an economical necessity for our business community.

Second, and more importantly for my purposes as the lead sponsor in the House of H.R. 4129, the "VoIP Regulatory Freedom Act of 2004," S. 150 as passed by the Senate contains a provision specifying that Voice-over-Internet-Protocol ("VoIP") services are not covered by the moratorium. That provision states:

SEC. 1108. EXCEPTION FOR VOICE SERVICES OVER THE INTERNET.
Nothing in this Act shall be construed to affect the imposition of tax on a charge for voice or similar service utilizing Internet Protocol or any successor protocol. This section shall not apply to any services that are incidental to Internet access, such as voice-capable e-mail or instant messaging.

While it has been misreported in the media and possibly misconstrued by others that this provision somehow specifically authorizes or requires the taxation of VoIP by States, nothing could be farther from the truth. This exception merely provides that the moratorium makes no inference as to the tax treatment of voice services provided over the Internet. Even Senator PATRICK LEAHY, Ranking Member of the Senate Judiciary Committee, has acknowledged the same when he stated during debate of S. 150 on the Senate floor on April 29, 2004, that "the McCain amendment [S. 150] ..... does not affect the emerging technology of Voice over Internet Protocol, VoIP." This provision does not authorize State and local governments to impose a tax on customers or require the collection of the tax by vendors. Nor does it provide that state and local taxes currently apply to VoIP services. Whether these services meet the definition of taxable telecommunications or other services under state and local statutes is a question of law and will be determined at a future date by Congress.

VoIP services as transactions in electronic commerce should not be burdened by the multiple and discriminatory taxes that States and localities currently apply to telecommunications services. The Federal Communications Commission (FCC) has recently ruled that VoIP is inextricably interstate by its very nature and therefore States are specifically prevented from regulating the type of VoIP provided by Vonage Holdings Corporation. However, the FCC specifically expressed no opinion on the applicability of State general laws governing entities conducting business within the State, such as laws concerning taxation, to VoIP providers. The FCC's decision, however, has ensured an environment in which VoIP can develop, prosper and grow to provide more choices for consumers and a more competitive communications industry. The FCC's decision also has ensured a greater degree of market certainty, will encourage investment, will create jobs and will prevent a misguided approach to regulating VoIP. The drafters of S. 150 had the same intent and goals in mind. In the House, 61 members joined me in sending a letter to the FCC on October 5, 2004, calling on the Commission to rule that VoIP is an interstate application and thus subject to FCC jurisdiction. The letter, signed by a bipartisan majority of the House Energy and Commerce Committee, urged a ruling that VoIP is interstate in nature and subject to the Commission's exclusive jurisdiction.

I mention all this to make the point that, because S. 150 does not determine the taxable treatment of VoIP, the issue will be dealt with in the near future in Congress where I believe, based upon the facts and goals espoused above, that a majority of both houses will agree that taxation and regulation of VoIP, if any, should be left to the Federal Government. To avoid any confusion for the future, our approval of S. 150 today does not in any way imply any support for taxation of VoIP by the States or the Federal Government. The provision was merely inserted to clarify that the moratorium does not make a decision concerning the taxability of VoIP.

Again, thanks to all those involved in this great legislative accomplishment and I look forward to working with my colleagues here in Congress to address the issues of VoIP and taxation in the near future.

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