Today's hearing, titled "Communications, Taxation, and Federalism," explores the sometimes difficult intersection between our desire to encourage online commerce and our constitutional responsibility to permit states and localities to manage their fiscal affairs. The most prominent issue before us is the pending expiration of the Internet access tax moratorium. Absent Congressional action, this law will sunset on November 1, 2007. However, as we consider legislation to extend this moratorium - either on a permanent or a temporary basis - it is essential that we carefully examine the ambiguities existing in current law, in the hope of avoiding unintended consequences. Indeed, following our most recent extension in 2004, a report conducted by Governmental Accountability Office (GAO) reveals that fundamental differences of opinion remain as to the interpretation of key terms in the current moratorium. Failing to address these ambiguities will only fuel, rather than resolve, ongoing confusion between industry and state and local governments as to the proper scope of services protected by the Internet access moratorium.
The significance of these disputes is magnified by rapid changes occurring in the nature of Internet access services and the ease with which providers of Internet access might bundle Internet access with goods and services otherwise available for purchase online. In light of these potential developments, Congress should clarify its intent before permanently codifying such ambiguities, and similarly, should ensure that any extension deals fairly with those state and local tax laws that have been expressly allowed since the adoption of the initial moratorium in 1998. Finally, our actions must consider the substantial interest of states and localities in managing their fiscal affairs. As Americans increasingly turn to the Internet to conduct transactions online, Main Street businesses will increasingly be placed at a competitive disadvantage. While many debate the size of the sales tax revenue currently lost from the growth in Internet commerce, most observers agree that the tax loss is significant and will grow robustly over time. As pressures on state treasuries increase, the effects of such policies will increasingly be felt by teachers, firefighters, police, and others on the front lines of providing state services. As a result, it is important that we encourage ongoing efforts to simplify state tax codes in the hope that such action may facilitate further congressional action that would permit states to treat online and offline sales transactions in a nondiscriminatory fashion. With that said, let me welcome the panel assembled here today. We look forward to your testimony. ###
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