<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:64023.wais]
THE REPORT OF THE ADVISORY COMMISSION ON ELECTRONIC COMMERCE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS,
TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
APRIL 6, 2000
__________
Serial No. 106-98
__________
Printed for the use of the Committee on Commerce
------------------------------
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Telecommunications, Trade, and Consumer Protection
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL G. OXLEY, Ohio, EDWARD J. MARKEY, Massachusetts
Vice Chairman RICK BOUCHER, Virginia
CLIFF STEARNS, Florida BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California ANNA G. ESHOO, California
NATHAN DEAL, Georgia ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming BILL LUTHER, Minnesota
JAMES E. ROGAN, California RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Gilmore, Hon. James S., III, Governor, Commonwealth of
Virginia................................................... 9
Material submitted for the record by:
The Sky Is Not Falling: Why State And Local Revenues Were Not
Significantly Impacted By The Internet In 1998, by Robert
J. Cline and Thomas S. Neubig, study entitled.............. 50
(iii)
THE REPORT OF THE ADVISORY COMMISSION ON ELECTRONIC COMMERCE
----------
THURSDAY, APRIL 6, 2000
House of Representatives,
Committee on Commerce,
Subcommittee on Telecommunications,
Trade, and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2123, Rayburn House Office Building, the Hon. W.J.
``Billy'' Tauzin, (chairman) presiding.
Members present: Representatives Tauzin, Oxley, Stearns,
Gilmore, Cox, Cubin, Shimkus, Wilson, Pickering, Fossella,
Ehrlich, Bliley (ex officio), Markey, Eshoo, Wynn, Luther,
Sawyer, Green, and McCarthy.
Also present: Representative Upton.
Staff present: Justin Lilley, majority counsel; Cliff
Riccio, legislative clerk; and Andy Levin, minority counsel.
Mr. Tauzin. The committee will please come to order. Let me
ask all our guests to take seats, and we want to accommodate
Governor Gilmore in a timely fashion, so we will begin this
hearing as we wait for other members to join us, Governor.
The subcommittee today has a very high honor of welcoming
the Governor of Virginia to the Committee on Commerce. Governor
Gilmore serves as the Chairman of the Advisory Commission on
electronic commerce, and he's here today to summarize for us
the commission's work, which is recently completed.
Let us first begin by congratulating Governor on his fine
work. Congress has obviously assigned a rather daunting task to
the commission. You and the majority of your colleagues, in our
opinion, have performed it admirably. You pulled together a
wealth of information and proposals that will surely guide this
committee and the Congress as it moves forward with legislation
to codify the work of the commission.
I think we can agree that E commerce holds rich potential,
that we almost think very carefully about whether we want to or
need to extend the hand of the tax man into the web. I, along
with the majority leader, Dicker Armey, have toured this Nation
to hear from the American people on the issue of taxes. We have
done 40 different cities in America in our Scrap the Code Tour,
Governor. If there's one thing we've learned from those tours,
it's that the American people think we're not listening to them
yet. The politicians are indifferent to the fact that over half
of what they earn goes to some level of government today.
We must, therefore, make it clear to consumers that on this
one important issue on the Internet, we're going to be
listening very carefully, and we're going to be watching out
for their interest. After all, we owe it to them. Let me remind
my colleagues that the tax man can take many forms, including
the FCC. That's why I and 132 of my colleagues have co-
sponsored legislation introduced by Congressman Upton that
would bar the FCC from imposing permanent access charges on
Internet access services.
I urge my colleagues to use today's hearing to begin
thinking about what this report means for the future of
taxation at every level of government. We're a country of
limited government, based on the principle that government will
take only that which it truly needs for the people of our
country. Governor Gilmore will today help us understand what he
and his colleagues learned about the government's needs when it
comes to the issue of E commerce. I certainly welcome him and
congratulate him on his fine work, and look forward to working
with him to enact the proposals of the commission.
The Chair will now welcome other members for opening
statements before I introduce the chairman of the full
Committee on Commerce, who will have the honor and privilege of
introducing the Governor of his home State of Virginia in just
a second. Now the Chair recognizes the ranking minority member,
Mr. Markey, for an opening statement.
Mr. Markey. Thank you, Mr. Chairman, very much. I want to
commend you for calling this hearing today to hear from
Governor Gilmore on his perspective on the work of the special
commission we established to explore issues relating to
Internet taxation.
I approach the issue of Internet taxation as someone who
supported the Internet Tax Freedom Act. We made a wise decision
to say time out and to give a blue ribbon panel with
representatives of the States, cities, industry, and the
Federal Government an opportunity to create a consensus on how
to handle this issue. I think that the Internet Tax Freedom Act
had a laudable goal, to protect electronic commerce in its
infancy from excessive, discriminatory, or confusing taxation.
It is important to keep things in perspective. The
magnitude of what we're talking about is relatively small. The
Department of Commerce announced just a month ago that the
estimate of U.S. retail E commerce sales for the fourth quarter
of 1999, October through December, was $5.3 billion. That means
that E commerce sales accounted for less than 1 percent of the
total retail sales estimates, which was $821.2 billion for that
quarter, yet there is little question that the growth curve for
online commerce promises to be exponential in nature.
There are a number of key questions that I believe need to
be asked before we consider making the Internet completely tax
free or making the current moratoria prohibitions last into
perpetuity. For example, is treating online retailers more
favorably from a tax standpoint than old time storefront
retailers necessary for online commerce to succeed and
flourish? Can the Internet survive an online tax onslaught from
thousands of taxing jurisdictions? If you believe the answer to
that question is no, then do you favor making a tax ban
permanent, or do you favor simplifying the tax collection
amongst jurisdictions in order to reflect the reach of the new
technology?
Recognizing the reality of the current digital divide, will
we exacerbate that gap with a cybertax policy that favors the
wealthy, who are more likely to shop online, over the poor, who
lacking access, will continue to pay taxes for purchases in
stores. For those who are against Internet taxes, what taxes do
you favor? Income taxes? Inheritance taxes? Property taxes?
Some taxes will have to be raised if we're going to take these
taxes off of the books. I think there's a responsibility to
have a concomitant discussion of the taxes that are going to be
raised with the same discussion of which taxes are going to be
lowered or eliminated. They're not two separate conversations.
It's all part of the same discussion.
The Internet tax moratorium has helped to focus everyone's
attention, and for that reason I believe it has been very
helpful, not only because it has been educational from a
technology standpoint for many people, but because it assists
us in re-examining our tax policies generally. I believe that
it is wise that the moratorium to be guided by the principle
that we don't want to single out the Internet for
discriminatory tax treatment.
In other words, I believe that the current moratorium has
been useful to the extent that it has prevented taxing entities
from singling out and victimizing Internet companies in a
discriminatory way for tax treatment. Just as many Members of
Congress, like myself, voted to prevent a rushed tax. I believe
simultaneously that we ought not to rush to make a tax
prohibition permanent. We ought to tread very carefully in this
area before we unwittingly create a cyberspace Cayman Islands,
like a tax haven without intending such a result.
Finally, I think that we should note the irony that we are
hearing from Governor Gilmore immediately preceding a hearing
on legislation introduced by Congressman Pickering, myself,
Mrs. Wilson, Mr. Largent, Jim Tauzin, and ranking member Mr.
Dingell, that streamline the process for collecting and
assessing tax revenue on mobile telephones. Increasingly,
consumers take their phones from State to State, city to city.
Right now, because of the mobile nature of cellular phone use
and the often unclear obligations and methodologies for
collecting tax revenue from wireless service and different
taxing jurisdictions, the cellular industry is burdened
administratively. Consumers are often confused about billing,
and tax officers from coast to coast are left trying to explain
nexus issues.
The cellular industry, worked in concert with our Nation's
Governors and tax commissioners to come up with a commendable,
straightforward plan to assess uniformly the taxes at a
cellular consumer's place of primary use. This is a laudable
effort, and one which I am pleased to co-sponsor with
Congressman Pickering.
I think it can serve as a model for building consensus on
issues affecting interstate commerce and State and local tax
jurisdictions. Again, I want to commend the chairman for
scheduling this double header today, as the baseball season
opens. I think we have two great hearings, and I think him for
his courtesy in allowing me a couple of extra minutes to finish
my opening statement.
Mr. Tauzin. The Chair would ask unanimous consent that we
waive giving any further opening statements in order to
accommodate the schedule of the Governor. If both sides will
agree, I can then introduce the chairman of the Commerce
Committee and introduce the Governor. Let me explain. The
Governor just informed me this morning--I want to sympathize
with you a bit, Governor, the legislature just left town in
Virginia and left him with 1100 bills that he's got to read and
either sign a veto by Sunday. I think we need to accommodate
him if we can. Can I have any signal as to whether or not
unanimous consent of that nature would be acceptable?
Ms. Eshoo. I don't want to spend more time debating it. How
many of us are here and how many minutes would it be? Five
minutes, 6 minutes? These are really important issues.
Mr. Tauzin. Well, then, the Chair will not put the
unanimous consent if the gentlelady has a problem. Is there
anyone on this side that wishes to make an opening statement?
Then the gentlelady is recognized.
Ms. Eshoo. Thank you, Mr. Chairman. I'll move as quickly as
possible. Good morning to you and welcome to Governor Gilmore.
Today we're participating in two hearings. In each, we're going
to learn about a group of government entities and business
interests and their effort to reform tax laws that threaten the
development of technologies important to our Nation's economic
success. One group, I believe, has done better than the other.
In the hearing on wireless communications, we're going to
hear from four individuals, each representing different
interests, who appear to have succeeded in reforming a
complicated and conflicting tax structure now hampering the
growth of wireless communication. We have a document, a bill,
we on the committee can refer to.
In this hearing, I don't believe we are as fortunate.
First, contrary to committee materials provided to us, as well
as several press reports, this committee is not receiving the
report of the advisory committee on electronic commerce today.
There is not a report. It hasn't been written, but apparently a
draft exists.
Second, while I, of course, welcome the chairman of the
commission, Governor Gilmore, to our committee, I believe we
are receiving his report of a summary of recommendations. These
recommendations were passed by a majority of the commission,
which is less than the Congressionally mandated super majority.
In reviewing the written testimony submitted by the witness,
much of the statement offers his personal opinion about the
work product of the commission. My preference would have been
to hear the opinions of other commission members.
The advisory commission faced difficult challenges. The
issue of taxes and E commerce are complicated and quickly lead
to fundamental questions about the basic commercial tax
structure of our Nation, and whether a revolutionary overhaul
is needed on State and local taxes and how they are collected.
I agree with several of the so-called recommendations we will
hear today, but I am disappointed that the committee is hearing
a summary of a draft report not yet fully written and which is
being presented by the witness today representing a commission
so divided that it could not meet the criteria that Congress
established for its recommendations.
I compliment the hard work the Governor and the rest of the
Commission put into the effort. I suspect many of the
commission members, especially those from the private sector,
got a real life lesson in public policymaking and how difficult
it is to find consensus on a fair and workable tax structure.
As a member of this Commerce Committee, I hope we are able to
have a more comprehensive hearing in the future, and I hope you
will conduct that, Mr. Chairman, one with the Commission's
actual report and one where we can perhaps have several of the
Commission members before us. It would be instructive to hear
them recount some of the problems they encountered and discuss
their views on why they think the Commission could not meet the
requirements set by Congress.
The Advisory Commission, I think we all agree, worked very
hard, and they wrestled with issues this committee will face in
the future. I think we owe it to ourselves, as well as to our
constituents and to our country, to get a fuller and better
picture of what occurred.
Thank you, Mr. Chairman, and I look forward to hearing from
Governor Gilmore.
Mr. Tauzin. I thank the gentlelady. The Chair and the
committee is very grateful that the Chairman of the Commission
has consented to come and give us his early report and
summarize the majority of the recommendations of the
Commission, even those that did not attain the two-thirds super
majority specified in our legislation, and to recognize and
present the Governor to the committee, the Chair is now pleased
to recognize the gentleman from Richmond, Virginia, the
chairman of the full Commerce Committee, Mr. Bliley, for an
introduction.
Chairman Bliley. Thank you, Mr. Chairman, and thank you for
holding this timely and important hearing. Let me just begin by
extending a very warm welcome to my good friend, the Governor
of Virginia, Jim Gilmore. It's an honor to have you here,
Governor, and you know and I know I've had the pleasure of
working with you from your days as a Commonwealth attorney of
Henrico County and when you were attorney general and now, of
course, as you are the Chief Executive Officer of Virginia.
This subcommittee has important business to attend to
today, and the subject is Internet taxes. There's an old saying
that there's nothing more certain in life than death and taxes,
and as a former funeral home director and a Member of Congress
for the last 20 years, I have some familiarity with both
subjects.
Today we will here from Governor Gilmore about the work of
the Advisory Commission on electronic commerce. The committee
crafted the Internet Tax Freedom Act and the Advisory
Commission, and it is only fitting that this committee be the
first to hear the Chairman's report.
Let me say that I hardly endorse the majority proposals
that the Governor will outline for us this morning. This
committee has developed a record on important E commerce
issues, and if there's one recurring theme in that record, it
is that taxation and regulation could kill the goose that lays
the golden egg. I know that some claim that tax revenues will
erode unless States and localities have the ability to tax
online retailers, but I have yet to see evidence that
conclusively shows that E commerce threatens State and local
tax revenue. Quite the opposite. All the evidence points in the
opposite direction. If States and localities are permitted to
tax E commerce and the Internet access, consumer demand will
wither.
Now, understand that some, including the Clinton-Gore
administration, have complained about our lack of a super
majority consensus on the Commission, but it's hard to
sympathize with those who complain when they refuse to support
common sense proposals. I suspect that what's really going on
here is a hidden agenda, an agenda to tax the Internet. This
pro-tax faction is now hiding behind alleged process concerns
as a reason to abstain from voting on proposals that keep the
tax men out of cyberspace. If that's political leadership, then
I invented the Internet.
There's no process concerns here. A majority of the
Commission has provided this committee and Congress with strong
and sound proposals that will insure a robust, electronic
marketplace well into the future. I look forward to enacting as
many of those proposals as possible. This committee will do its
share of pushing this important anti-tax agenda along.
Consumers expect tax relief from this commerce. They should get
it.
In closing, let me say that I regard the Internet Tax
Freedom Act as one of the most important accomplishments from
the 105th Congress. I am hopeful that Congress will soon be
able to build on that act. Then we will be able to look back on
the 106th Congress with the same sense of pride and
achievement.
Governor Gilmore, welcome to the Commerce Committee, and
congratulations for a job well done. Mr. Chairman, I yield back
the balance of my time.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Michael G. Oxley, a Representative in
Congress from the State of Ohio
Thank you, Mr. Chairman, and thanks to Governor Gilmore for joining
us today to present the Commission's summary.
Internet technology continues to revolutionize the American way of
life in every facet, from real-time stock trading and travel
reservations to online computer games. The Internet has exploded in
just a few years to become the most creative technological medium in
history. It is allowing people in rural areas, such as Ohio's Fourth
Congressional District, to gain easy access to information and
services, making them less economically remote.
In fact, many of my constituents are able to access the Internet
for free, either in their local public libraries or by utilizing one of
many no-fee Internet service providers. There is no doubt that these
free options have attracted many thousands of people to the online
community who would not otherwise have had access.
The absence of government regulation of the Internet has
contributed dramatically to its expansion. I think we should be careful
not to over-regulate the online world and risk stifling its continued
growth. I was proud to support the Internet Tax Freedom Act in the last
Congress, which established the three-year moratorium on the imposition
of Internet-related taxes.
We are now more than halfway through that three-year period, during
which the Advisory Commission on Electronic Commerce has worked
diligently to study the potential effects of access charges and
taxation on e-commerce. I salute Governor Gilmore and the other members
of the Commission for their thousands of hours of service to this task.
I look forward to your testimony today, Governor, and look forward to
receiving the Commission's full report later this month.
Thank you, Mr. Chairman. I yield back the balance of my time.
______
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress
from the State of Florida
Mr. Speaker, I thank you for holding this hearing for the Chairman
of the Advisory Commission on Electronic Commerce to provide the
Subcommittee with a summary of the Commission's report to Congress. I
give special thanks to Governor Gilmore and all of his efforts as
Chairman of the Advisory Commission on Electronic Commerce.
We are all now familiar with the immense growth and presence of the
Internet. Electronic commerce is now one of the leading drivers of the
U.S. economy. It accounts for 2.3 million jobs. The Internet Economy
exceeded $500 billion last year alone, and more than 17 million U.S.
households shopped online in 1999. This medium has clearly
revolutionized our economy, and I think President Reagan best summed-up
the Government's view of the economy: ``If it moves, tax it. If it
keeps moving, regulate it. And if it stops moving, subsidize it.''
Well, before Government was able to get its hand on the Internet in
order to tax it, Congress passed the Internet Tax Freedom Act, of which
I was an original cosponsor. I believe it provided a sensible
moratorium on the burden of Internet taxation. The act imposed a three-
year moratorium on new Internet taxes, while creating the 19-member
Advisory Commission on Electronic Commerce. The Commission was given
the formidable task of studying the impact of sales and use tax
collection on Internet sales and presenting to Congress its
recommendations on electronic commerce taxation by April 21, 2000.
Today is the first opportunity for Congress to receive and review a
summary of the Commission's report prior to the full recommendation.
The Commission first met in June of 1999, and subsequently its
members came together three more times, the last being March of this
year. Over the last ten months, it was to solve the issue of sales and
use taxes on interstate sales of tangible products. I am disappointed
that the Commission failed to gain the two-thirds majority necessary
for a formal recommendation to Congress. As a result of the
Commission's impass and procedural wrangling, several of the most
important questions the Commission was given the task of solving,
whether Congress should mandate simplification of sales and use tax
administration, and whether the existing nexus standards for interstate
commerce should be overturned, have not been solved. I admit I am
disappointed by the three White House members of the Commission who
abstained on virtually every vote, although they took part in the
negotiations.
Thus, at the end of the day, the e-commerce community, government,
and Americans in general, are left wondering whether a simple and
equitable solution to these complex issues will be found. Nonetheless
the Commission is to be commended for its hard work and the formidable
task it undertook, and a majority of the Commission's members support
extending the Congressional moratorium in new Internet taxes for five
more years, repealing the 3% telephone excise, banning taxes on
Internet access charges, and simplifying the patchwork of state sales
taxes. These proposals are a common-sense approach to ensuring that
telecommunications services flourish in the e-commerce age.
I commend my friend from Louisiana, Mr. Tauzin; the Chairman of
this committee, Mr. Bliley; and the pioneer of the Internet Tax Freedom
Act, my friend from California, Mr. Cox, for leading the charge last
Congress to ensure Government does not stifle the growth of the
Internet. Furthermore, I intend to introduce legislation prior to the
April recess, building upon the Commission's recommendations.
I believe codifying the Commission's recommendations is a necessary
step in ensuring that the Internet prospers and flourishes, while
Congress returns to the task of resolving the remaining questions the
Commission was unable to reach a consensus on. The purpose of the
legislation is to allow for e-commerce and telecommunications services
to grow by first repealing the 3% telephone excise tax that was passed
in 1898 to fund the Spanish American War. Last time I checked, we won
the war a century ago, but Americans continue to pay a regressive tax,
generating annually more than $5 billion in general revenue. Similar
proposals have been introduced in both the House and Senate, and in the
105th and present Congress. Additionally, I believe the current
Congressional moratorium on multiple and discriminatory Internet taxes
should be extended for at least another five years, while Congress
continues to wrestle with issues of taxes on the Internet. Multiple and
discriminatory taxes do nothing but increase costs for consumers, and
threaten by strangulation the boom and prosperity currently spreading
through the telecommunications industry.
I welcome input and participation by my colleagues and look forward
to their comments. I hope to build on their efforts in ensuring that
the Internet continues to grow free from the burdensome long arm of the
government.
Thank you.
______
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress
from the State of Wyoming
Thank you, Mr. Chairman, for conducting this important meeting to
receive the Report of the Advisory Commission on Electronic Commerce.
Welcome Governor Gilmore.
Internet taxation is one of the issues I hear most about when
meeting with local Wyoming officials and small business owners.
These two groups view this matter as an issue of fairness--as do I.
In 1998, when Congress levied a broad three-year moratorium--which
by the way I supported--it was thought we could create this Commission
to address the issue of multiple taxation of this important new e-
commerce.
It was a good idea then and I believe it will continue to be a good
idea but not until taxing jurisdictions can clarify and simplify
current electronic commerce tax laws.
The issue of fairness has yet to be addressed.
As I stated earlier, I supported the moratorium in 1998, and as
many of you know I am not a proponent of levying taxes against the hard
working men and women of this country.
However, without the authority to collect taxes on consumers'
Internet purchases, in-state retailers are being discriminated against
due to the Internet becoming a tax haven for consumers.
Many of us on this committee are former local officials who should
understand and take exception to this fact since this disparity erodes
state and local tax revenues.
I want to thank Governor Gilmore on his leadership and commend a
few of the Commission's proposals.
First, extending the moratorium for five years until we get a
handle on how to address multiple and discriminatory taxes on the
Internet is a good idea as long as it's taken seriously and gets
resolved.
Which leads to the next proposal that encourages states and
localities to simplify their sales and use taxes in order to create the
fairness or parity I mentioned earlier.
Finally, I agree wholeheartedly that we must repeal the three
percent federal excise tax on telecommunications services.
Again, thank you Mr. Chairman for holding this important meeting. I
yield back the balance of my time.
______
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Thank you, Mr. Chairman, for recognizing me.
It's a pleasure to welcome Governor Gilmore this morning. Governor,
while I'm keenly interested in your views on electronic commerce,
certain members of this Committee could also benefit greatly from your
views on interstate waste. I hope that in the future you'll return and
that we will be able to help you solve some of the problems you and
other states are encountering in your efforts to gain control over the
waste shipped into your states.
Much has been reported in the press about the activities of the
Advisory Commission on Electronic Commerce, and opinions strongly
diverge about the wisdom of its findings and recommendations, among
both Democrats and Republicans. But at least one thing is clear: The
job was an extremely difficult one, and each of the 19 commissioners is
owed a debt of gratitude for their tremendous sacrifice of time and
effort on the public's behalf.
The Commission was handed the extraordinary task of sorting out the
appropriate tax policies that should apply to the online world of
electronic commerce. It was a task that Congress grappled with for some
time, but with little success. The Congress hoped that by setting up a
Commission composed of industry leaders and representatives of all
levels of government, a fair tax policy could be devised that would
rationally balance each of the competing interests involved.
Unfortunately, the Commission was unable to achieve the two-thirds
consensus required by law to deliver many of its findings or
recommendations to Congress. Despite the law's specific direction to
the contrary, I understand Chairman Gilmore intends to transmit a
report that includes even those recommendations that were unable to
garner the required 13 votes. That decision is clearly at odds with the
statute, and is understandably the source of strong criticism from
within the ranks of the Commission itself.
I regret that a great many of us in Congress will be obliged to
treat the bulk of the Commission's report as though it were never
presented, given the law's clear direction in this matter. And I must
emphasize that this is not just a case of blindly following form over
substance. The two-thirds majority requirement was included in the law
to make sure that Congress could greatly rely on the Commission's
findings and recommendations since they were expected to be truly
representative of a consensus view.'
The ability of Congress to rely on the strength of the Commission's
report is of paramount importance given the enormous stakes involved in
this debate. We must find a way to achieve a myriad of equally
important goals. We need to protect the future growth of electronic
commerce and, at the same time, preserve the viability of traditional
producers whose contributions are also vital to the country's economic
health.
Just as important, our actions must not put at risk the services
provided by State and local governments who depend on sales and use
taxes for up to one-half of the needed financing for schools, roads,
public safety, and countless other critical services.
It is for this reason that Congress prescribed a super-majority
vote on each of the Commission's recommendations. And it is for this
reason that we should continue working, as long as it takes, and in a
bipartisan fashion, toward finding an answer that promotes and protects
all of the substantial economic interests at stake.
Thank you again, Governor Gilmore, for your dedicated service in
helping us find answers to these difficult questions. I have every hope
that we will, in time, solve this puzzle, and the work of the
Commission will have contributed greatly toward that effort.
Mr. Chairman, I yield back the balance of my time.
Mr. Tauzin. I thank the chairman of the committee, and we
welcome Governor Gilmore for his statement. Governor Gilmore?
STATMENT OF HON. JAMES S. GILMORE III, GOVERNOR, COMMONWEALTH
OF VIRGINIA
Governor Gilmore. Chairman Tauzin, Ranking Member Markey,
members of the Telecommunications, Trade and Consumer
Protection Subcommittee, I want to thank you for inviting me to
report on the results of the Advisory Commission on Electronic
Commerce, and I'm happy to accommodate the subcommittee's
request to come in and speak to them at this point and time,
and I will be happy to continue this dialog even beyond this
day, but I'm happy to be here today at the request of the
subcommittee.
I want to begin by thanking speaker Hastert, Majority
Leader Armey, Congressman Bliley, and Congressman Rogers for
their support of the Commission's work, as well as Senate
Majority Leader Lott and Senator Gregg for their efforts and
guidance as well. All of these leaders helped us through what
was a somewhat difficult process, particularly
administratively, and I want to thank them very much for their
leadership.
A year of study has confirmed a few important facts. The
Internet is the most transforming economic development since
the industrial revolution. Information technology is driving
America's economic boom, and it's creating new jobs, increased
productivity, and efficiencies in every sector of the economy,
and generating new wealth in America.
The Internet economy is not just facilitating commerce, it
is creating new commerce, and it is empowering individual
people in their roles as citizens in a democracy as consumers
and as entrepreneurs. In recognition of these positive
realities, the Commission developed a comprehensive set of
policy proposals for the 21st century economy, including a
number of tax cuts and tax reforms that will directly benefit
hard-working men and women and their families and small
businesses and entrepreneurs across Virginia--excuse me, across
America. You've got to excuse me, folks.
First, Congress should eliminate the 3 percent Federal
telephone tax, an immediate tax cut of over $5 billion for the
American people each year. This tax was originally established
as a luxury tax for the few Americans who own telephones to
fund the Spanish American War of 1898. The war is over, and
it's time for the Congress to address this issue in this new
information age. In the information age, it is important to
reduce the cost of Internet access and to begin to close the
digital divide by eliminating the regressive tax on people's
telephones. The policy of the United States ought to be to make
the Internet more accessible to people.
Second, Congress should extend the current moratorium on
multiple indiscriminatory taxation of electronic commerce for
at least 5 additional years, through 2006.
Third, Congress should make permanent the current
moratorium on Internet access taxes, including those access
taxes that were grandfathered under the Internet Tax Freedom
Act to reduce the price of Internet access and to close the
digital divide.
Fourth, Congress should prohibit taxation of digitized
goods, information, and services delivered electronically over
the Internet in order to protect consumer privacy on the
Internet and to prevent the slippery slope of extending sales
taxes to all services, entertainment, and information in the
U.S. economy.
Moreover, this tax prohibition is essential to maintaining
U.S. global competitiveness since the United States currently
dominates the world market in digitized goods such as software
and content.
Fifth, Congress should clarify bright line nexus standards
for American businesses engaged in interstate commerce. The
cyber economy has blurred the application of many of these
legal rules, including nexus standards. American businesses
need clear and uniform tax rules. It is a fair warning and a
fair assessment of how to conduct business in order to subject
themselves to these kinds of obligations. Nexus definition
would assist the American economy by doing that. Therefore,
Congress should codify nexus standards for sales taxes, in the
same way that it acted to define nexus standards for income
taxes 30 years ago in Public Law 86-272.
Congress should adopt nexus rules or adapt nexus rules to
the new economies dot come and click and mortar business models
in order to provide the American people tax freedom on remote
Internet transactions, to protect small businesses and medium
sized businesses, from onerous tax collection burdens in
multiple States and to eliminate costly litigation spurred by
confusing nexus rules.
Sixth, the States should undertake a concerted effort to
simplify their confusing and overlapping telecommunications
taxes and sales taxes and use tax systems. This effort will be
particularly important for telecommunications companies and
their customers as they built out the Internet infrastructure
and offer new technologies and services.
Seven, Congress should close the digital divide by
clarifying State authority to spend TANF reserves to provide
needy families access to computers and the Internet and by
targeting tax cuts and Federal matching funds to public-private
partnerships between States and technology companies. Our
national goal should be to make the personal computer and
access to the Internet as ubiquitous as the telephone and
television is today. Within the next decade, we should work to
do this and to empower all U.S. citizens to log on and
participate in the Internet economy.
Eight, the Congress should respect the paramount importance
of consumer privacy when crafting any laws pertaining to online
commerce generally and imposing any tax collection and
administration burdens on the Internet specifically.
Nine, Congress should encourage the Administration to press
for a moratorium on international tariffs on electronic
commerce over the Internet.
Now, these are the most important ideas generated in a year
of open debate and thorough study. The members of the
subcommittee, of course, have been following this along.
Everything has been open, on the Internet, reported carefully
within the newspapers and in journals, and has been thoroughly
examined as an enlarged body of work over this entire year.
Consistent with direction from Speaker Hastert and Senator
Lott, some of the Commission's policy proposals will come to
the Congress by way of a two-thirds vote, the statutory hurdle
for our formal recommendation or finding process, and some will
come with a majority vote of 11 to one, with seven votes
abstaining. Taken together, they provide Congress a
comprehensive foundation for bold and innovative ideas for
legislative action that will have a tangible and positive
impact on the lives of working men and women and their
families.
Now, I believe the Internet is responsible for the advent
of a new age of opportunity for American people as citizens,
consumers, and entrepreneurs. America's response to this
marvelous tool of individual empowerment should not be to tax
the Internet and the people who use it, and I believe the ideas
generated from this Commission will leave a lasting legacy on a
new way of thinking for a new century, and it's a new paradigm
for the 21st century.
It's my honor to serve as chairman of this Commission, and
I want to thank you very much for inviting me to come and be
with you today, and I'm happy to respond to that request of the
subcommittee to appear with you today and answer any questions
you may have. Mr. Chairman.
[The prepared statement of Hon. James S. Gilmore III
follows:]
Prepared Statement of Hon. James S. Gilmore III, Governor of the
Commonwealth of Virginia & Chairman, Advisory Commission on Electronic
Commerce
Introduction
Chairman Tauzin, Vice Chairman Oxley, Ranking Member Markey, and
members of the Telecommunications, Trade and Consumer Protection
Subcommittee, thank you for inviting me to report to you on the results
the Advisory Commission on Electronic Commerce.
Let me preface these remarks by recognizing the exemplary service
of all members of the Advisory Commission on Electronic Commerce. The
Congress took great care in appointing distinguished leaders from
diverse perspectives and from the public and private sector.
They include several distinguished leaders from the private sector:
Michael Armstrong of AT&T, Grover Norquist of Americans for Tax Reform,
Richard Parsons of Time Warner, Bob Pittman of AOL, David Pottruck of
Charles Schwab, John Sidgmore of MCI WorldCom and UUNet, Stan Sokul on
behalf of the Association of Interactive Media, and Ted Waitt of
Gateway. And they include an equally impressive group from the public
sector representing state and local governments: Dean Andal, Chairman
of the California Board of Equalization, Delegate Paul Harris of the
Virginia General Assembly, Commissioner Delna Jones of Washington
County, Oregon, Mayor Ron Kirk of Dallas, Texas, Governor Mike Leavitt
of Utah, Gene LeBrun of the Commissioners on Uniform State Laws, and
Governor Gary Locke of Washington State. And representing the Clinton-
Gore Administration were Joe Guttentag of the Department of Treasury,
Andy Pincus of the Department of Commerce, and Bob Novick of the Office
of U.S. Trade Representative.
These people devoted thousands of hours and their creativity in the
service of the hardworking people of the United States. I assure you
that these distinguished people accomplished great deeds on the
people's behalf. You can be proud of their efforts.
Most importantly, I am proud of the quality of the ideas that will
be reported to Congress. Speaker Hastert asked the Commission to send
``sound policy proposals for the individual taxpayers of America,'' and
Senate Majority Leader Lott requested us to forward ``a clear and
unambiguous policy proposal. . . , especially if that proposal is bold
and innovative.'' That is precisely what the Congress will receive.
The Commission Has Successfully Fulfilled Its Charge
The Advisory Commission on Electronic Commerce was established by
Congress to conduct a thorough study of federal, state, local and
international taxation of electronic commerce. For the last 10 months,
19 Commissioners have been deeply engaged in that endeavor.
The Commission held its first meeting in Williamsburg, Virginia, in
June of 1999. We met again in New York City in September, and then
again in San Francisco in December. The Commission held its last
meeting in Dallas, Texas, in March of 2000, and then concluded its
business on a conference call a week later.
The Commission came a long way in 10 months. Since June of last
year, the Commission heard testimony from over 55 experts, academics,
think-tanks and interest groups representing a broad range of
perspectives on tax and electronic commerce policy. Each Commissioner
was able to invite their own experts to express a viewpoint. We heard
from every quarter, from the Heritage Foundation to the National
Governor's Association and Wal-Mart.
The Commission also received over 7,000 pieces of mail and over
50,000 e-mails. Every viewpoint has been heard. The Commission's
library has grown to over 280 selections. Our Website received an award
from MuniNet -- it was selected as one of that publication's top sites
for 1999. That website will be archived by the Library of Congress for
posterity. Our Commission has been viewed by hundreds of thousands of
people on C-SPAN and via webcasts of our meetings.
By the time the Commission arrived in San Francisco in December, we
had distilled dozens of issues into a ``Policies & Options'' Paper.
That paper guided an open and engaged debate at the San Francisco
meeting and propelled the Commission to our final meeting in Dallas
where we voted on specific policy proposals and attempted to come to
constructive policy conclusions in the best interests of the American
people. I am confident that conclusions we reached will indeed benefit
the people of the United States with regard to the taxation of
electronic commerce.
In short, the Commission fulfilled its public obligation to engage
and educate the people of the United States on the policy of Internet
taxation, and its statutory charge to report the results of our study
to Congress no later than April 21, 2000.
On behalf of the Commissioners, I extend our special appreciation
to Speaker Hastert, Majority Leader Armey, Congressman Bliley and
Congressman Rogers for their support in making the Commission a
success, as well as Senate Majority Leader Lott and Senator Gregg for
their efforts and guidance. I also applaud the foresight of Senator
Wyden and Congressman Cox in sponsoring the Internet Tax Freedom Act
which created the Commission.
The Internet is Driving the New Economy
A year of study has confirmed at least a few important
principles.The Internet is the most transforming economic development
since the Industrial Revolution. Information Technology is driving
America's economic boom--creating new jobs, increasing productivity and
efficiencies in every sector of the economy, and generating new wealth
in America. The Internet economy is not just facilitating commerce--it
is creating new commerce. And it is empowering individual people in
their roles as citizens in a democracy, as consumers, and as
entrepreneurs. Every person on the Commission recognized that our
national economy, U.S. global competitiveness, and American culture
depend vitally upon nurturing full development of the Internet.
I believe the Internet and information technology, combined with
the creativity and hard work of the American people, are responsible
for the advent of a new Age of Opportunity. For the first time ever,
consumers can locate perfect information and access to goods and
services at the touch of a button, and small businesses and
entrepreneurs can--for the first time in history--reach a global
marketplace and compete with big, capital intensive companies. The
result is a digital marketplace even Adam Smith would marvel.
Evidence that the Internet is driving America's economic boom
abounds and was most recently documented in a study conducted by the
University of Texas' Center for Research in Electronic Commerce.
According to the study, the nation's Internet-based economy grew 68
percent last year to produce over $507 billion in business revenues.
The Internet economy has created 2.3 million new jobs. The Internet and
information technology sector now accounts for more than half the
capital investment in our country. And of the tens of thousands of new
businesses being created every year, research shows nearly one in three
did not exist prior to 1996. One sector of the Internet economy--
electronic commerce--accounted for nearly 1 million of the 2.3 million
jobs created by the Internet.
Even in rural areas long ago ignored by the economic progress in
metropolitan areas and bypassed by the Nation's huge investment of
public resources on the interstate highway system, small businesses are
prospering by selling products worldwide. The Virginia Diner in rural
Wakefield, Virginia, is a perfect example. The nation's huge investment
of tax dollars in the interstate highway system left Rt. 460, a classic
small town ``Main Street,'' virtually abandoned years ago. Those people
who happened through Wakefield could stop into the Virginia Diner and
buy a cup of coffee and a can of Virginia peanuts. But the Internet
economy has empowered VaDiner.com to sell Virginia peanuts to consumers
from Spain to California to Tokyo. Due to the boom in Internet sales,
the Virginia Diner has increased its employment in Wakefield from 70 to
120 employees over the last three years and this year the Diner will
invest over $100,000 in new computer hardware and software.
This new economic activity, increased productivity and job creation
is generating new wealth and increasing tax collections by governments.
Indeed, the Internet economy has local, state and federal tax coffers
fuller and growing faster than ever through the massive job creation
and capital investment occurring in every state in the Nation. The
National Governor's Association reports that the states collectively
took in $11.3 billion in tax surpluses in 1998 despite tax cuts
totaling $5.3 billion in 1998 and $4.9 billion in 1997. And end-of-year
balances for all states totaled $35 billion by the end of 1998. In
1999, the states collectively took in $7.5 billion in tax surpluses
despite additional tax cuts totaling $7 billion. Sales taxes in
particular continued to increase in 1998 and 1999--the states
collectively took in surpluses of sales taxes totaling $2.3 billion in
1998 and $2.2 billion in 1999 as people spent their new wealth.
The Challenge for Public Policy--Government Must Change
Underlying all the documented numbers is a profound social and
economic transformation. Every sector of our society is challenged to
adapt to the new Internet economy. Business is being conducted
differently. Business models are changing. Companies are more efficient
and productivity per employee is increasing exponentially. The same
transformations are occurring in education, in the way Americans live,
obtain information and conduct their own lives. Fundamentally, this
technology empowers. It empowers businesses, business leaders,
employees, educators, and mostly it empowers each individual citizen.
All of this evidence validates the maxim: The Internet changes
everything. More to the point, the Internet changes everything
including government. Old rules do not work well in this new borderless
economy. Sometimes they do not work at all. Regardless, change is
everywhere, and government has to change as well.
In the Internet economy, government at all levels must change its
policies as well as the way it operates. The Internet is driving a 15
percent increase in revenues and productivity per employee in the
private sector economy, according to the University of Texas' Center
for Research. Government must marshal the Internet to become equally as
productive per public employee in the delivery of government services.
The result should be a dividend to American taxpayers through lower-
cost, more efficient government. The savings should be re-prioritized
to other government services so that no city goes without fire trucks
or schools, and taxes should be kept low.
Policy Prescriptions for the 21st Century
That brings me to policy prescriptions for the 21st Century
economy. I point out that the some of the Commission's policy proposals
will come to the Congress by way of a two-thirds vote--the statutory
hurdle for a proposal to take on the elevated status as a formal
``recommendation'' or ``finding.'' On issues such as international
tariffs, consumer privacy, and the digital divide, we came to two-
thirds votes, though I was disappointed representatives from the
Clinton-Gore Administration abstained on these consensus issues. On a
host of core tax issues, the Commission came to a clear majority by a
vote of 11 to 1 (with 7 votes abstaining) and we will share the results
of our work on those topics with you, as well, as requested by Speaker
Hastert and Senate Majority Leader Lott.
Let me provide one disclaimer regarding my personal opinion which
is the position I advocated within Commission debates. I believe that
no taxation is presumptively necessary. To the contrary, the
presumption should favor the right of individual citizens to keep their
own hard-earned money. Government must prove a tax is absolutely
necessary for the provision of essential services before taxing a new
realm of economic activity or human endeavor. Government has no right
to expand tax burdens on Americans just because a similar commercial
transaction is taxed. Government should take only what it needs to
operate government and stop there.
And in the context of electronic commerce, America's response to
the Internet revolution should NOT be to tax it or all the people--the
individual taxpayers, consumers and small businesses--who have been
empowered by it. In my view, the history of the 20th Century was about
bigger government built at the expense of hardworking people. But the
21st Century offers the promise of smaller, more efficient government
and a proportionate increase in the economic freedom and liberty of
individual people who are permitted to keep more of their own money.
In my view, the Internet changes everything, including government.
Government at all levels must begin now to harness the efficiencies and
productivity increases facilitated by Information Technology and the
Internet. Free enterprise is doing it. Government must do it, too.
That opinion was not shared universally on the Commission.
Nevertheless, a majority of Commissioners approved policy prescriptions
that, in my view, advance these objectives. Among the ideas submitted
in this Report, you will find proposals for the following tax cuts and
tax reforms:
<bullet> First, Congress should eliminate the 3% federal telephone
tax--an immediate tax cut of over $5 billion annually for the
American people. This tax was originally established as a
luxury tax for the few Americans who owned a telephone to fund
the Spanish American War of 1898. Since that time, it has been
scheduled for extinction for decades, but was finally made
permanent in the late 1980s. In the Information Age, it is
important to stop taxing people's telephones. Elimination of
this regressive tax is an important first step in reducing the
expense of Internet access, one of the contributing factors to
the digital divide. While this tax once was justified as a
luxury tax on the few Americans who owned a telephone, it has
no rationale in the Information Economy.
<bullet> Second, extend the current moratorium on multiple and
discriminatory taxation of electronic commerce for an
additional five years through 2006.
<bullet> Third, prohibit taxation of digitized goods sold over the
Internet. This proposal would protect consumer privacy on the
Internet and prevent the slippery slope of taxing all services,
entertainment and information in the U.S. economy (both on the
Internet and on Main Streets across America). Moreover, this
tax prohibition is essential to maintaining U.S. global
competitiveness since the United States currently dominates the
world market in digitized goods.
<bullet> Fourth, make permanent the current moratorium on Internet
access taxes, including those access taxes grandfathered under
the Internet Tax Freedom Act. This proposal is another crucial
initiative, targeted to reduce the price of Internet access and
to close the digital divide. By expanding the moratorium to
eliminate the current grandfather provision, consumers across
the country would participate in electronic commerce without
onerous tax burdens.
<bullet> Fifth, establish ``bright line'' nexus standards for American
businesses engaged in interstate commerce. The cyber economy
has blurred the application of many legal nexus rules. American
businesses need clear and uniform tax rules. Therefore,
Congress should codify nexus standards for sales taxes in a way
that adapts the law of nexus to the New Economy and the new
``dot com'' business model. Codification of nexus would serve
several important policy objectives: (1) provide businesses
``bright line'' rules in an otherwise confusing system of
state-by-state nexus rules; (2) protect businesses, especially
small businesses, from onerous tax collection burdens; (3)
reduce the amount of costly litigation spurred by confusing
nexus rules; (4) nurture the full growth and development of
electronic commerce; and (5) give consumers and individual
taxpayers who participate in Internet commerce a tax break.
<bullet> Sixth, place the burden on states to simplify their own
labyrinthine telecommunications tax systems as well as sales
and use tax systems to ease burdens on Internet commerce. This
effort will be particularly important for small and medium-
sized retailers with nexus in two or more states. It also will
be important for telecommunications companies as they build out
the Internet infrastructure and offer new technologies and
services. Radical simplification will be necessary in the New
Economy if small and medium-sized businesses are to succeed.
<bullet> Seventh, clarify state authority to spend TANF funds to
provide needy families access to computers and the Internet, as
well as the training they need to participate in the Internet
economy. This is one strategy the Commission formally
recommends to close the digital divide and make the personal
computer and access to the Internet as ubiquitous as the
telephone and television.
<bullet> Eighth, provide tax incentives and federal matching funds to
states to encourage public-private partnerships to provide
needy citizens access to computers and the Internet. This is
yet another strategy the Commission formally recommends to
close the digital divide.
<bullet> Ninth, respect and protect consumer privacy in crafting any
laws pertaining to online commerce generally and in imposing
any tax collection and administration burdens on the Internet
specifically. This is a formal recommendation of the
Commission.
<bullet> Ten, continue to press for a moratorium on any international
tariffs on electronic transmissions over the Internet. This
idea also is a formal recommendation of the Commission.
<bullet> And eleven, a majority of the Commission endorsed a
comprehensive framework for addressing international tax and
tariff issues based upon the following core principles: no new
taxes or tax structures on electronic commerce in the world
marketplace; tax neutrality toward electronic commerce;
simplicity and transparency of tax rules applied to electronic
commerce; and a call for the Organization of Economic &
Community Development (OECD) to continue fostering
international dialogue and cooperation on international tax
issues.
These are the key ideas generated in a year of open debate and
thorough study.
As you can see, the Advisory Commission on Electronic Commerce has
been busy. Some our ideas obtained a two-thirds majority to rise to the
level of formal ``recommendations'' while others obtained a clear
simple majority by a vote of 11 to 1 (with 7 votes abstaining). Taken
together, they comprise a comprehensive package of ideas to inform
Congress of the comprehensive array of tax issues implicated by the
Internet. Consistent with direction from Congressional leadership, the
Commission has provided Congress a bold and constructive foundation for
legislative action that will have a tangible and positive impact on the
lives of working men and women and their families.
It has been my high honor to serve the people of the United States
as Chairman of the Advisory Commission on Electronic Commerce. I thank
the Congress for entrusting me with this critical role in shaping ideas
for the 21st Century. I thank my fellow Commissioners for their keen
insights and creativity and, most of all, for their great sacrifices of
time and effort in the service of our Country. Few chairmen can claim
to have presided over a more distinguished assembly of public and
private leaders. The Commissioners can be satisfied their labors have
advanced the best interests of the people of the United States, and the
Congress can be proud of the quality of ideas they have delivered.
These ideas will leave a lasting legacy on a new way of thinking for a
new century. This Commission has rung a bell for the 21st Century and a
new paradigm in America. For that, I am very proud.
Thank you for inviting me and I would be happy to answer any
questions.
Mr. Tauzin. Thank you very much, Governor. The Chair will
yield himself the appropriate time and yield that time to the
author of the legislation which created the Commission, the
gentlemen from California, Mr. Chris Cox.
Mr. Cox. Thank you, Mr. Chairman, and welcome, Mr. Chairman
and Mr. Governor. Your leadership on this Commission is truly
something for which the Nation should be grateful. I think all
of us on this committee who wrestled with this legislation in
the first instance recognized how difficult these issues are.
Whenever you are considering changing the rules for not just
the Nation's economy but the global economy, there are a lot of
special pleaders, and a lot of people affected by this, and so
it cannot be easy. What you have done, lending dignity to the
proceedings and making sure that the intellectual product has
been so substantial is something for which I think all of us
are truly grateful.
As Chairman Tauzin has indicated and as you know, I didn't
invent the Internet, but I can claim some credit for inventing
the Internet Tax Freedom Act along with Ron Wyden, an alumnus
of this committee who's now in the Senate. Our purpose in
including in the legislation that bans new, multiple, and
discriminatory taxes on the Internet, including in that
legislation a commission, was to recognize our own
shortcomings. We wrote this legislation 2 years ago, and the
new economy has developed amazingly since that time. We
couldn't know 2 years ago even what all of us in this room know
today about technology, and we have to recognize our own
limitations in looking forward.
What you have been able to do is bring a lot of expertise
from across the country and around the world to bear on the
question of what should our tax policy be for the 21st century.
We cannot apply the tax policies developed for smokestack
industries to the new economy. So, I'm very impressed that you
have come up with so many recommendations and that they are in
fulfillment of the charge most recently given by the speaker of
the House and the Senate majority leader, truly bold and
innovative, and you didn't go for a sort of dumbing down to the
lowest common denominator to achieve consensus.
Two of your recommendations are particularly striking, and
I want to ask you about those. First, you ought not only to
extend the current moratorium on new, multiple, and
discriminatory taxes, and you want not only to permanently ban
Internet access taxes, but you want to include in that ban a
few taxes that were grandfathered because they were already on
the books before Congress could act a few years ago. I want to
ask you about that and about the repeal of the Spanish-American
War tax, whether or not in both cases you have a two-thirds
vote.
Governor Gilmore. Congressman, the sense of the Commission
as we went along was that there were burdens on
telecommunications, burdens on the Internet that ought to be
eliminated. There was a proposal that came forward that drew an
11 to 1 vote but did not reach the 13 vote, so that was a part
of this, but the Commission's report, while it is not a
recommendation, the Commission's majority report has come
forward and suggested that we ought to, in fact, extend the
moratorium but to recognize that there was a flaw in the
moratorium, that the moratorium as currently constituted
contains grandfathering clauses to continue to allow taxation
on Internet access if it previously existed.
In the interest of consistency and the growth of the
industry and the opportunities for working men and women
everywhere, because after all, it's individual citizens that
pay this access tax, not businesses, the report that will be
coming forward will suggest that the Congress, in fact,
eliminated those grandfathered taxes and have a consistent
across the board approach that says we should not be taxing
access to the Internet. That will be an extension or an
addition to the current moratorium which we believe is too
limited at this point. Also, the----
Mr. Cox. I'm sorry, Governor, was the Commission
essentially unanimous on that point or was----
Governor Gilmore. No, it was not, as a matter of fact. The
proposal came forward with this and a number of other
proposals, and that passed as a part of the report at 11 to one
with seven abstentions, but it was not a consensus by any
means, to my amazement.
Mr. Cox. I see. But in fact, there was only one vote
against it.
Governor Gilmore. That's correct. There were seven
abstentions. Please understand, Congressman, that the way that
this act was structured, if the conclusion had been that there
was--if the Congress's direction had been interpreted, there
could be no work product of this Commission in the absence of a
13 vote or better, then we should never have bothered to have
met, but I don't believe that's what the Congress intended.
Mr. Cox. What I can tell you, since I at painstaking length
wrote those provisions with Governor Leavitt and mostly in my
office, that at least what the author of the legislation had in
mind was that if we were going to have a Congressionally
chartered commission recommending higher taxes on the Internet
back to Congress, I wanted that to be a two-thirds vote. We
didn't want to make it easy for a commission to go out and
recommend higher taxes and come back to us. I think it's
abundantly clear that there was no recommendation to tax the
Internet that received a two-thirds vote, and so the purpose of
the two-thirds provision has been met, but I agree with you. We
are interested in the information that you assembled, and it
was certainly not the intent of the legislation to prevent the
commission from reporting back everything that it wished to
report back to us. In fact, I think I may have had the
opportunity to mention, publicly or private before, that when I
served as a Presidential appointee appointed by President
Clinton on another commission that was looking at Social
Security taxes, also a tough issue, the so-called Entitlement
Commission, the Cary Danforth Commission, that the only way we
could put out a report was to have every single one of the
commissioners put down his separate views, and that's what we
did. The people of the country deserve a report back, and the
fact that you had an 11 to 1 vote, it seems to me, puts a lot
of weight behind your recommendations.
Governor Gilmore. Yes, sir, an 11 to 1 vote to eliminate
all access taxes to the Internet and also to eliminate this 3
percent Spanish-American war tax as well came out at 11 to 1.
There was a more pro-tax plan that was brought forward, but it
never mustered more than eight votes, and therefore never even
rose to any type of majority of any kind.
I agree, as chairman, I believe I certainly tried to follow
the Congress's guidance on this. The Congress certainly wanted
to have our information, and then of course, it would be
persuasive to the Congress if we ever did achieve a two-thirds
majority on anything which, of course, we did in two areas.
Otherwise, we thought that this information and the work
product of the Commission should come forward to the Congress
for the value that Congress wishes to give it.
Mr. Tauzin. The gentleman's time has expired.
Mr. Cox. I thank the chairman.
Mr. Tauzin. The Chair now recognizes the gentleman from
Massachusetts, Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman, very much. If we could
step back for a little bit, I think that just by the fact that
we are debating Internet taxation, we necessarily are debating
all taxation because, of course, if we are going to exempt one
part of the American economy from taxation, we have to
necessarily talk about increase in taxation in another part of
our economy. There's just no way around it. We have a certain
amount of Medicare, Social Security, education, fire, go right
down the whole line, of services which Americans need, and
there's a finite amount of money which has to be produced in
order to accomplish those goals.
So, if we assume that no one's talking up here about
reducing the amount of revenue that is available at the State
and local, for that matter, national level, then we have to
keep that number constant. Now, if we're having a different
debate, which is that this should be something which is viewed
as a tax cut, a tax cut that leads to revenue reductions which
reduce our capacity to be able to deal with police, fire,
education, Medicare, Medicaid, then that's a different debate,
but it's necessarily part of the discussion which we have to
have.
So, in yesterday's National Journal, quite interestingly,
Bill Archer, the chairman of the Ways and Means Committee,
along with John Linder and Collin Peterson, a Democrat, all
talked about essentially moving to a 23 percent national sales
tax as the form of raising revenue here for the Federal
Government, doing away with the income tax.
Now, if we move to a national sales tax, I guess my
question would be under your proposal, would there be a
capacity to tax any of the revenue which is generated by means
of retail sales online?
Governor Gilmore. Congressman Markey, there wasn't anything
in this Commission that suggested that we ought to have either
a national sales tax or that one was necessary.
Mr. Markey. No, I mean if we did move to that model, that
the chairman of the Ways and Means Committee is now proposing
that we have a national sales tax, would we under your proposal
merge with that proposal, if both became law, be able to tax
Internet online retail transactions.
Governor Gilmore. The Commission never found that there was
any evidence that was persuasive, at least to the majority of
the group, that said that there was a necessity for a national
sales tax or that one, in fact, ought to be imposed. In fact,
even moving beyond that to the question of the State and local
sales taxes which was the central issue that we addressed, we
took note of the fact, of the evidence that was presented to
us, that the States and localities are awash in money, that as
the Internet economy grows, nonetheless, the States and
localities are not losing money. They are gaining money. The
States collectively took in $11.3 billion in tax surpluses in
1998, despite even tax cuts during 1998, $4.9 billion in 1997.
End of the year balances on rainy day funds are awash in money.
The States took in $7.5 billion in tax surpluses despite
additional tax cut, and as it grows----
Mr. Markey. If I can just interrupt you briefly.
Governor Gilmore. Yes, sir.
Mr. Markey. Because Massachusetts and Virginia kind of vie
for a very close second with Silicon Valley in terms of this
entire area, so I agree with you that we are awash in money
today. Unfortunately, we already lived through one
Massachusetts miracle that created a candidate of some note
running for the presidency in Massachusetts in 1988.
Unfortunately, that miracle did evaporate for 3 or 4 years, and
tax revenues did diminish greatly. So, we can't really predict
the weather of 2 or 3 or 4 years from now by looking out the
window today.
So, I guess my question to you, Governor, is this. Do you
personally support doing away with all taxation, including
sales taxes on the Internet, even if--and again, it's an
integrated debate--Bill Archer and the Republican party here,
move for a national sales tax to replace the national income
tax. Where would you stand on that issue?
Governor Gilmore. Well, first of all, Congressman, let me
just say that the Commission has produced a majority report
that does not think that we have any necessity of producing
additional sales taxes in order to fund those State services
that you were speaking about, and it is not correct to say that
all sales tax issues are tied up with Internet sales tax
issues. It is not necessarily the case that one goes hand in
hand. The question that was before the Commission is in this
new area of commerce, is it a necessity either philosophically
or as a matter of funding of State government to extend
taxation into this new area, and the conclusion of the
Commission was that it was not.
My personal view is that we can strike a reasonable balance
that, in fact, makes it very clear that we can collect the
revenues. We can put all of this into effect without extending
those tax obligations onto the Internet.
Mr. Markey. See, Governor, if I may just for 10 seconds
just summarize that we had another distinguished alumnus of
this committee, David Stockman, who argued quite persuasively
in 1981 that a central fallacy was possible to be accomplished,
which was we could cut taxes dramatically, increase defense
spending, and balance the budget simultaneously. We always
admired his ability to an eye-watering detail defend knowingly
erroneous premises, okay? He was great at that, but we really
can't argue with the one hand that we can cut taxes and
continue to fund at the same time existing social service
programs at the same level. I appreciate your testimony here
today. Thank you.
Mr. Tauzin. Thank you, Governor. Mr. Markey, it just
occurred to me as an observation that the Massachusetts economy
and the Presidential candidate sort of both went into the tank
at the same time.
Mr. Markey. It's something that hasn't been lost on us
politically. Governor Weld's whole career is premised.
Mr. Tauzin. I thank you, my friend. The Chair recognizes
the gentleman from Richmond, Virginia, the chairman of the full
committee, Mr. Bliley.
Chairman Bliley. Governor, the Commission spent some time
looking at this issue of State and local taxation of Internet
access, and I note that the majority concluded that Congress
should eliminate all such taxes because the impact these taxes
have on consumer demand for Internet access services, is that
correct?
Governor Gilmore. Congressman, you were asking whether or
not--I'm sorry, repeat your question.
Chairman Bliley. The Commission spent some time looking at
the issue of State and local taxation on Internet access.
Governor Gilmore. Yes, on access, yes, sir.
Chairman Bliley. And I note that the majority concluded
that Congress should eliminate all such taxes, is that correct?
Governor Gilmore. That is correct, Congressman.
Chairman Bliley. I also note that the FCC imposes access
charges on long distance carriers for the cost of using the
local telephone network and that some have raised concerns that
the FCC might some day extend access charges to Internet
service providers. If so, would FCC impose access charges raise
the same concerns? In other words, would access charges on
Internet access have the same consumer impact as taxation of
Internet access?
Governor Gilmore. Congressman, I think it would. The
Commission did not address this specific issue, but they did
address in general the burdens that are placed upon individual
working men and women who have to pay fees in order to have
access to the Internet, in order to close the digital divide
and to make the access to the Internet more available to every
American. It was the sense of the Commission that Congress
ought to reduce every burden that it possibly can. I would
think that the issue of whether or not there was to be access
fees charged to Internet companies which then might be passed
on to individual working men and women would be a concern of
the Commission because we addressed it in other ways, like the
3 percent excise tax and like taxation on Internet access.
Chairman Bliley. Some pro-tax advocates are arguing that
the Commission's report is laden with special interest favors
for big business. Could you walk us through the tax cuts and
tax benefits for individual citizens?
Governor Gilmore. Yes, sir. I think that it is not fair and
probably just an effort by pro-tax people to try to knock down
the Commission report to suggest that somehow this is some
group of special interest legislation. I don't think that's
right at all. Certainly the sense of the conservatives on the
Commission was that we were in it for the people of the United
States. We wanted to try to deliver tax cuts to the people of
the United States, and I think that the Commission report does
propose that, and specifically, it suggests that we should
eliminate the 3 percent excise tax on telecommunications,
again, that was imposed almost a century ago to fight the
Spanish-American war. The reason you do that is not because
businesses pay the tax but because individual working men and
women pay the tax on telecommunications, which is a burden on
access to the Internet.
There was a proposal--there is a proposal to eliminate the
access taxes on the Internet that even today are imposed by
certain States and localities, not because businesses pay those
taxes but because working men and women and families pay those
taxes across the country. So, certainly there are those
proposals.
There is a proposal that we come forward and define what
nexus means, as we in fact have done, as the Congress did in
the case of income taxes. We do that in the case of sales taxes
as well, and that will give fair warning to businesses, when
especially small business, that when they engage in this
activity as to what is going to subject them to tax collection
obligations or other kinds of obligations as well.
There, of course, are proposals that the Congress also
urged that there be no taxes on digitized goods. If you begin
to go toward the taxation of digitized goods, then you have to
find a way to impose that tax. To do that means that you just
have to simply invade the transactions on the Internet of
individual people that are doing business with every retailer
across the world globally on the Internet, and you have to
understand what that transaction is and it has to be reported
to some government some place.
One place we did rise to a two-thirds majority was privacy
concerns within this Commission, is the recommendation of this
Commission, a full recommendation that the Congress be very
sensitive to privacy concerns. That means that we have to be
very alert to the fact that the invasion of these transactions
is a potential invasion of privacy, which would mean, by the
way, that people will not use the Internet if they think that
all of their information is going to be made available to
anyone. Privacy is a very key issue in that area.
There of course are approaches also to address the digital
divide, something that's very near and dear to my heart. We
believe that--the assertion that was made a little while ago
that this is somehow a suggestion that this is a system for the
rich is a very backward looking approach. We have to recognize
that just as the phone has now become available to everyone,
the Internet, that must be the goal of America, to make the
Internet available to everyone as well.
So, to close the digital divide by the use of TANF funds
and other efforts and partnerships between government and
localities and States and private businesses in order to make
more people have access to the Internet should be our goal.
These are all the proposals that are included in one form
or another, recognizing of course that the privacy concern
rises to that dignity of the two-thirds proposal.
Chairman Bliley. Thank you, Mr. Chairman. I see my time has
expired.
Mr. Tauzin. I thank the gentlemen. The Chair now recognizes
the gentlelady from California, Ms. Eshoo, for 5 minutes.
Ms. Eshoo. Thank you, Mr. Chairman. Governor, I'd like to
go back to some of the underlying themes that I expressed in my
opening statement.
Governor Gilmore. Yes, ma'am.
Ms. Eshoo. Because I think that it's important to establish
the context. Do I believe that there are many areas where
essentially weeds have grown around this system where there are
overlays in terms of our taxes and taxing system that really
should be removed from the books? Of course I do. I have the
privilege of representing a Congressional district that is the
prime engine in our Nation that has caused the expansion in our
economy that produces not only the ideas, possesses the
intellectual property, and makes them real in our Nation, which
is Silicon Valley. So, I think that I have a first-hand view, a
very deep and broad view, and appreciation of the issues that
have brought the Internet to the place that it is today and
will continue to make cyberspace one of the most exciting and
economic privileges for our Nation and for the world.
I want to go back to a couple of things because I think
something is getting ahead of us here, and that is that the
Commission produced what you are here reporting on today, and
that is not the fact. Can you tell us how many Governors
supported what you have brought forward today?
Governor Gilmore. How many Governors, Congresswoman?
Ms. Eshoo. Uh-huh.
Governor Gilmore. I haven't taken a count on Governors. Our
goal here was to work with the 19 members of the Commission, of
which only three Governors, of course, were appointed to the
Commission, and I haven't taken a count. I know that when I
spoke at NGA, I thought that many of the Governors were very
ambivalent about, as a matter of fact, about what the right
approach was and were willing, like I have been, to keep an
open mind and to listen and to actually get the facts and the
evidence.
The key point here is, I think, is that of the State and
local representatives that were appointed to this Commission,
four supported a strong pro-tax position and three supported a
strong anti-tax position. I might say that Andal of California
and myself represent more people than all the others combined
that were, in fact, in favor of pro-taxes.
Ms. Eshoo. Are you aware of the language that established
the Commission that stated that no finding or recommendation
shall be included in the report unless agreed to by at least
two-thirds of the members of the Commission? I think that's
very important. I think that, you know, if I were on the flip
side of the questions that I'm asking you, that it could be
suggested that I'm filibustering and that I want to tax
everything to death. That's not the point. I think we need to
be very fair about this and understand the context in which you
come before us today. Why was Governor Leavitt not allowed to
even submit some minority view?
Governor Gilmore. Two points, Congresswoman. First of all,
the report itself did not require a two-thirds consensus to be
yielded up to the Congress. In fact, I would not think that
Congress would want all this work to be done, this body of
information to be thrashed out and then not be able to submit
any kind of report because a solid block of pro-tax folks would
block any report. I think that was the effort, really, of the
abstention votes, but it didn't work because you can't have a
tyranny of the minority, and I don't think that the Congress
dictated it.
Ms. Eshoo. Governor, with all due respect, I don't think
what the Congress established was tyranny. I think that they
established something----
Governor Gilmore. No, no, I didn't suggest that.
Ms. Eshoo. [continuing] that would bring forward----
Governor Gilmore. You misunderstood me.
Ms. Eshoo. [continuing] a broader consensus on an issue
that is--I mean, this is like trying to get socks on an
octopus. I'm not suggesting that this is an easy task that was
presented to the Commission, but to suggest that the majority,
and in a draft report that we really haven't seen, is the final
consensus of the Commission that you headed I think blurs the
case. I don't think that it's fair. That's what I want to
establish.
Governor Gilmore. Let me ask you directly. The statute does
not demand that two-thirds be obtained before a report can come
forward. Recommendations yes, but we're making it very clear
that many of the proposals cannot rise to the level of
recommendation, but the Congress is entitled to what they asked
for, which is a report.
Ms. Eshoo. Well, the report can be filed, but any findings
included must be approved by two-thirds of the vote. That's
what the legislation said. I mean, we're all taking credit for
the votes that we passed on the Internet taxation legislation,
but that's the language that was in it. Now somehow we're
throwing the language overboard but we want our votes to stand,
and we're coming in here somehow fully accepting what your
presence brings forward, and that's not the case.
Governor Gilmore. I understand, Congresswoman.
Ms. Eshoo. Are you willing to stipulate to that?
Governor Gilmore. No.
Ms. Eshoo. You're not?
Governor Gilmore. No, because the language of the statute
makes it very clear that a report will come forward, and we
have been very fair and open and honest with the----
Ms. Eshoo. But that's only half. You're saying that the
legislation, yes, stipulates that a report can be filed, but
any findings that are included have to be approved by a two-
thirds vote.
Governor Gilmore. And we have so----
Ms. Eshoo. The Commission did not do that.
Governor Gilmore. And we have so designated within the
report those matters that rose to that level of dignity and
those that did not. Anything that was a majority report has
come forward, which I think is the----
Ms. Eshoo. Let me just, because this is my time, the NGA is
opposed to your recommendations, and it's been reported that as
many as 44 Governors support the NGA view. So, we have a mixed
view. There is a mixed view in the country out there by the
chief Constitutional officers of States. You know, at the end
of the day, maybe what the majority brought forward the
Congress will accept. We haven't arrived there yet, and I don't
want this record to be blurred to suggest that it is all one
and that it isn't some of the other.
Ms. Eshoo. I think that's an unfair view.
Mr. Tauzin. Gentlelady, your time has expired.
Governor Gilmore. I must respond, Mr. Chairman, to the
second point which I haven't gotten to, which is the issue of a
minority report. It was the sense of the Commission that
matters that could not obtain even a majority ought not to be
included in the report of the Commission. However, the
Commission was extremely liberal in this, or shall I say
generous in this, by having each Commissioner have three pages
to summarize his point of view, whether it could command a
majority or a super majority or not. In fact, the report will
obtain statements from each of the Commissioners, which is
basically a whole series of majority, consensus, and minority
reports all together. In fact, I ruled as chairman that any of
the Commissioners that wish to get together and submit a so-
called minority report by combining their space could get pages
and pages and pages. I don't know that they've done that, but
every minority view is going to be thoroughly represented
within the final report.
DR. POWERS: The gentlelady's time has expired. The Chair
recognizes the gentleman from Ohio, the vice-chair of the
subcommittee, Mr. Oxley.
Mr. Oxley. Governor, welcome, and congratulations for a job
well done.
Governor Gilmore. Thank you.
Mr. Oxley. The now infamous excise tax that funded the
Spanish-American War, the most expensive war in American
history, continues unabated. If you tax something, you get less
of it. In this case, I think if you tax something, you get less
growth, and certainly in this case growth of the Internet.
It's interesting that the tax that was imposed in 1898 was
a luxury tax. That was, there were very few people that had
working telephones, and obviously we've moved now to a
situation where 97 or 98 percent plus of Americans have
telephones. Most of them have more than one in their homes. Now
we have the advent of the Internet and the growth of the
Internet. I wonder if anybody would consider that to be a
luxury in today's market. I doubt it. It has become such an
ubiquitous part of American life that you would be very hard-
pressed to call it a luxury and yet, in fact, Americans are
still paying that luxury tax. I congratulate you for your
strong position on that particular issue, and hopefully
Congress can do something about that.
The Ohio delegation met with Governor Taft yesterday, and
he obviously, from his position, has some concerns about the
recommendations, and I appreciate where he's coming from. You
indicated in your report and in your testimony that government
must change, and that is true. How can State governments, in
your view, adapt to the new realities of the information age,
specifically in terms of creating or getting enough revenue to
run State government to provide education and the like, and how
much time will they have to do that? It seems like a rather
heavy lift from where I sit, but could you kind of take us
through what your vision of that might be?
Governor Gilmore. I think we need to explode the myth that
somehow the Internet is a threat to services by State and local
governments. There's no substantial evidence of that. There's
speculation that perhaps someplace, somewhere that there will
be such a move of E commerce over that there might be some
diminution of sales tax revenues, but there's no evidence of
it, no facts of it. All the facts are to the contrary. As the
Internet grows and as the Internet sales continue to grow,
revenues are going up in the States.
I think we need to, in simply grasping for additional
sources of old traditional thinking about sales taxes which
were put on during the depression era, for heaven's sakes, I
think we need to, in fact, accept this medium and to recognize
it for what it is, and that is an opportunity for increased
productivity, for growth of an industry that we have not seen
before, for the employment of more and more people, for the
raising of additional revenues, if you will, as a result of the
growth of this industry. We're seeing more and more people
shopping, more increased opportunities for commerce, more
productivity, and as a result of that, revenues are going up,
not down.
So, I believe that we should just not grasp onto old ideas
that are fearful about the idea that revenues may be going down
when, in fact, the evidence is to the contrary. Revenues are
going up.
Mr. Oxley. So you would not necessarily advocate a radical
change in, at least in the short term, the States tax
structure, is that correct?
Governor Gilmore. It's not necessary to attack the sales
tax generally in order to exempt the sales tax on the Internet.
It's not necessary to do that. You can exempt sales taxes on
the Internet without threatening the sales tax within the
States and the localities. There's no evidence that one is
going to destroy the other.
Mr. Oxley. I understand that your Commission dealt, or at
least talked about the practical realities of tax collections
in the States over the Internet, of retail business conducted
over the Internet. In my home State, for example, we have a
piggyback tax so that counties can levy a piggyback tax on top
of the State sales tax. It just seems to me it would be so
difficult in all of those jurisdictions. Our State may treat
taxation of clothing different than other States. The same kind
of things with food items or drugs. Is that a very practical
problem that you also dealt with?
Governor Gilmore. You've asked a very central question, and
it was dealt with extensively within the Commission, and
Governor Leavitt asked for an opportunity to go away after our
New York meeting and come back in San Francisco in order to
produce a technological fix on this, a solution that would, in
fact, be able to solve all of these problems through technology
and make taxation of the American people on the Internet
something that could be imposed. Couldn't do it, and I'm not
sure that it is possible to ever do it.
This is a dramatic change in the way that government has to
understand its limitations of its powers in the future. This is
a confidential conversation going on between buyers and sellers
across the entire globe. No technology exists to capture all of
that, and to capture that information in order to produce this
type of sales tax that we have traditionally seen at the cash
register when you have your consumer standing right there with
you. So that is, in fact, a very difficult technological
difference in this that we have not yet been able to solve, and
I'm not sure that it's ever going to be solvable.
Mr. Oxley. Thank you, Governor. Thank you, Mr. Chairman.
Mr. Tauzin. The gentleman's time has expired. The Chair
recognizes the gentleman from Texas, Mr. Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman, and Governor, again,
welcome to the Commerce Committee, and I appreciate the work of
the Commission. Frankly, though, I think the Commission made
some good recommendations. Some of the easy ones, though, the
elimination of the 3 percent tax, I think we could all vote for
that right now, whether it was the Spanish-American War or
World War I. In fact, a member of the Commerce Committee,
Representative Klink from Pittsburgh, actually introduced a
bill that would remove that tax last year sometime, and a
number of her co-sponsors. I know there's a current piece of
legislation, Congressman Matsui and someone else, has at the
Ways and Means, so that's an easy one.
Extending the moratorium, I have some question because
again, coming from Texas, and we had an exemption on that
moratorium, I suggested our legislature in 1999 that we
eliminate that, but there again, that's a local decision, so I
would rather, instead of the Congress telling Texas what to do
or telling Virginia on local taxes, that we let them do that
and hopefully they'll--the powers that be will do it. I don't
know about bold and innovative ideas that I heard, you know,
because looking at the report, I think it made some good
solutions and some of them that hopefully this Congress will
pass.
The concern I have is, again, the State of Texas, I served
from 1973 to 1993 in the legislature, and I was very well
trained that some things need to be done in the local States
and not here in Washington. Ten years before I got there, the
State of Texas made a decision to have the sales tax as their
basic revenue source and not an income tax. In fact, in the
last 5 years, they put a prohibition against the income tax in
the State constitution, that some of my Republican colleagues
would like us to do.
What I see, though, as a Commission, though, is saying that
we're not going to see a loss of sales tax revenue, and it will
be the growth, and that's great, but I have a report from the
University of Tennessee that shows Virginia by the year 2003
will see a loss of $363 million. The State of Texas will lose
$1.7 billion. That agrees with my State controller, who is a
Republican, has said that the State of Texas may lose a billion
dollars in Internet sales.
I don't want to tax Internet service, and if I was in the
legislature now, I would sponsor the bill to eliminate that,
but I also know that we have some problem with States who
traditionally use a sales tax as their revenue raiser. We don't
have an alternative. We have a lottery, and again, we can't add
another lottery to replace that one $1.7 billion we may lose by
2003.
I know it goes back to the nexus rules, and that's what I
wanted to talk to you about. Did the Commission talk about
using the 1992 Supreme Court decision that if that using the
nexus rules for, as we do now for mail order, to use for
Internet sales? Is that something that the Commission
discussed?
Governor Gilmore. The Commission, first of all, I believe
that Congress suggested that catalog sales and Internet sales
would be treated similarly, depending--and we should consider
it as such, and of course, we have. With respect to the nexus
standards, yes, there was the suggestion of this Commission is
that the Congress codify nexus rules so that we understand what
interstate commerce is really about. One thing I think the
Commission adopted was the notion that interstate commerce is
the purview of the Congress. I mean, that's obviously not
stunning, but that nevertheless is what we concluded, that
interstate commerce has to be addressed by the U.S. Congress
under the Constitution. We no longer live under the Articles of
Confederation, but I think----
Mr. Green. I don't know, maybe from our southern States we
might have some disagreement there.
Governor Gilmore. We in Virginia have learned our lesson,
Congressman.
Mr. Green. We were at the western end of that war.
Governor Gilmore. But we do live under a Constitution where
the Congress is going to make the decision about interstate
commerce. However, with respect to sales taxes within the
respective States, I don't think there's any doubt about that,
and there's no suggestion by anybody on the Commission that we
ought to be trying to dictate matters intrastate within States.
They can make those decisions, but when you're dealing with
matters that touch upon a part and parcel of interstate
commerce, and in fact, this isn't just interstate commerce. The
Congress, I think, must recognize that this is really
different. This isn't just interstate commerce. This is global
commerce.
Mr. Green. And I understand that, though, to whatever we do
within our own country, you know, I can order a book from the
Cayman Islands, you know, that's not subject to the tax unless
I happen to voluntarily pay it.
Let me--my time is almost up, but let me talk about another
one of the concerns that I have is that the digitized content.
I understand the weighing, the privacy issue versus the taxing
and how local government or State government would have to get
into that, but the suggestion on that is not only to exempt
taxes on digitized content but also to expand it and the old
fashioned nondigitized components, which include special taxes
from books, music, electronic games, magazines, and even
newspapers. I think it's ironic, again, looking at what my
local State did, we long ago exempted sales tax on newspapers
in the State of Texas. Obviously the newspaper lobby was very
good, but we also liked not to pay sales tax on our news,
except this last session of legislature extended the sales tax
on newspapers only to airport facilities, obviously for those
of us who travel through the State of Texas and want to buy a
Houston Chronicle, we pay sales tax on it whereas if I go off
the airport premises. So, I worry that again, we may be
seeing--we may be dictating to the States on what may be part
of the sales tax realm, and that decision really should be left
up to those local States. Again, when you consider,
particularly where I come from, of $1.7 billion loss.
Again, before I lost all my time, could you address--you
said that the Commission decided that the growth in sales would
actually make up for that loss, and that's not something, at
least our State controller in Texas or the University of Texas
agrees with. Did the Commission have that information from the
University of Tennessee study that--I guess it was released in
February of this year, but also from State controllers around
the country?
Governor Gilmore. I believe we did, and I believe that we
listened to all ideas, including not only the Tennessee study
but others, many other studies as well, that indicated that, in
fact, that we were going to see a continuing growth of revenue
as a result of all of this.
I think maybe the central point that I would address your
question on is this. To the extent that we can maintain the
growth of revenues which, in fact, is the facts today and at
the same time give working men and women around this country an
opportunity to not pay taxes in certain forms of commerce which
are different from traditional forms, and to grow this
industry, but more importantly than that, to create a tax cut
for working men and women across the country, the Commission
believes that's a responsible policy.
Mr. Tauzin. The gentleman's time has expired. The Chair
wants to thank the gentleman, by the way, for supporting the
repeal of that awful 3 percent excise tax. My mother's a
Martinez. I'm not sure you know that, and we personally resent
the notion we're still collecting money for a war against the
Spanish.
Mr. Green. If I could respond, I agree, and like I said,
our colleague on the committee introduced that bill last year,
and I'm glad we're finally getting Ways and Means to get their
attention. They don't let us do tax policy here.
Mr. Tauzin. Maybe come together on this. Thank the
gentleman. The Chair recognizes Mr. Shimkus for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman. I think abstaining is
kind of like kissing your sister, and to my colleague from
California, had we had members who had the guts to cast a vote,
maybe we would have had a majority or the two-thirds majority
on some of these issues. I kind of find it appalling, a
dereliction of duty, for the people to be named to a Commission
that spend a lot of time and then abstain from a vote. I just
want to--I applaud you bringing out the committee's report in
such a manner.
I also have been always interested in taxation and how we
hide taxes so the public really doesn't have an understanding
of how much taxes we're paying and where it's going to. So, any
way we can get to a clear, simplified process so that the
citizens of our country, regardless of what level. I used to be
a county treasurer. I used to be a local property tax
collector. One of the most toughest, yeah, the Matthew of
Madison County--but people scrutinize their property tax bills.
They see the rate for the school districts. They see the rate
for the municipality. They have a clear understanding. At least
you can explain it. So, any way we can simplify the process and
get rid of these taxes that are kind of pushing up revenues
that the public doesn't understand I think is going to be
helpful.
I'm most interested in the point seven of the report,
Governor, that kind of addresses digital divide and the
proposal to use TANF funds to help, I would assume, purchase
computers, training for those who are most in need to help
close the digital divide. Can you, based upon your experiences
as the Chief Executive Officer of the Commonwealth of Virginia,
explain how you would propose doing that given the latitude,
based upon legislation? I'll listen for the response, and then
if I have time, I have one follow-up on the same issue.
Governor Gilmore. Let me address several of the points that
you have raised. No. 1, I believe the abstentions were a
tactic, in fact, to prevent anyone from getting to the super
majority. We just need to recognize that's what that was. Even
on the digital divide proposals, which did rise to a two-thirds
majority and to be a recommendation of this Commission, many of
the Commissioners changed their votes in order to make that a
super majority. Amazingly enough, the three Federal
representatives did not. They remained in abstention on the
digital divide proposal, which I find just astounding,
considering that this is a forward looking approach, I think,
by the Commission and it rose to a majority.
On the question of simplification, I think it's very
important for me to mention to the members who are here, the
simplification has two sides to that coin. Those that wish to
impose taxes on the Internet seek simplification because they
think that that is a way, a path to taxation. Others on the
Commission, such as myself, support simplification because we
just think it's in the best interest of the economy, the
business community, and the men and women who are dealing
within this new economy. So, we all believe that simplification
is a good idea and that Congress should address that issue, but
I want to emphasize that we have different goals in terms of
that simplification and you should not be fooled by that.
Finally, the most important thing, as the Governor of a
State, I think the digital divide, in closing, is very
important, and I think we have opportunities here to be very
creative and forward looking to partner with businesses to make
Internet access available across the board. I have in my own
legislature this time passed legislation which puts us in a
position to utilize our libraries to make Internet access
available, even if poorer communities. In fact, I wanted to go
further and put them in community centers and use TANF funds.
We are very hopeful that the Congress will help us and the
administration will help us to find TANF funds. We also hope
that we can continue to extend this more and more broadly
because access to the Internet should be as ubiquitous as the
telephone, and if we do that, we are not abusing people of
lesser means. We're helping them. At least if we apply a
creative and progressive tax proposal such as the one that this
Commission has come forward with in its majority proposal.
Mr. Shimkus. And I appreciate that, and I'll just follow up
with I'm really intrigued by the use of TANF funds, and I would
like to see, obviously, a computer and Internet access in every
home in America, and I think that's how you improve education.
That's how you're going to improve science and technology and
mathematics, and so I think there's something we can work with.
Also, as important as lowering the taxation on the Internet
access, which will be an issue that will help address the most
needy in this new economy, and I yield back, Mr. Chairman.
Thank you, Governor.
Governor Gilmore. Thank you, Congressman.
Mr. Tauzin. I thank my friend for yielding. The Chair now
recognizes the gentleman from Maryland, Mr. Wynn, for 5
minutes.
Mr. Wynn. Thank you, Mr. Chairman, and thank you, Governor
Gilmore, for all your hard work on this project. I know it is
not easy, and there are some very serious issues. I just have a
couple of quick questions. As a Governor, can you share with us
the position of the Governor's association with respect to the
sales tax issue and whether or not we ought to have a uniform
sales tax regime that will enable States to collect sales tax
based on these remote sales?
Governor Gilmore. I think that the--it's clear that the
National Governor's Association is on record as being more pro
taxation in this area. There's no doubt about that. They do
want to impose taxes. Each individual Governor must speak for
himself, of course, and I think that each Governor is
responsible for his position, and they should be held
accountable for their positions, and that's okay with me, but
NGA has taken its position and feels very strongly about it.
Was there a second part of that question?
Mr. Wynn. Well, I just wanted to clarify. Do you agree or
disagree with the notion of a uniform sales tax regime as the
only way to address the sales tax issue with respect to
cyberspace and Internet sales?
Governor Gilmore. Well, I don't believe that there's any
necessity of imposing these kinds of taxes on the Internet,
much less a uniform rate. If you go to simplification, which
could take the form, I suppose, of one rate across the country,
or maybe 50 rates or something of that nature, if you could get
States to do that or localities to do that. Many localities in
the States are home ruled localities and are not obligated to
follow State rules in some of these matters, so I think it's
going to be very difficult to reach that kind of
simplification.
I want to repeat what I said a few moments ago,
Congressman, and that is that simplification can take two
forms, and Congress ought to understand this clearly. Some
groups want to simplify, such as NGA, in order to reach
taxation on the Internet. Some want to simplify simply to
simplify in order help consumers and to help businesses and to
help this new economy, and I am one of those.
Mr. Wynn. Okay, so you don't see that uniformity is
necessary, is that your bottom line?
Governor Gilmore. Uniformity in this area?
Mr. Wynn. For sales tax collection by the States.
Governor Gilmore. On the Internet?
Mr. Wynn. On the Internet.
Governor Gilmore. No, I don't think that it's necessary.
Mr. Wynn. Okay. Do you then disagree with the Republican
chairman of NGA, Mr. Leavitt, Governor Leavitt, excuse me, who
seems to disagree with your report and seems to feel that there
ought to be a vehicle for States to collect sales tax revenues?
Governor Gilmore. I do disagree, but I'm highly respectful
of all the members of the Commission, including Governor
Leavitt. He is a very strong advocate for his position. We're
not in any type of emotional thing here. We're in just a
situation of policy disagreement.
Mr. Wynn. My State, Maryland and its Governor is concerned
about a possible loss of as much as 20 percent in the future of
its sales tax base. I'm concerned, particularly when you have
many States that don't have an income tax and rely solely on
the sales tax as to how they can afford to exist in this kind
of environment, and I'm concerned that the Commission has
perhaps given short shrift to this concern.
Governor Gilmore. No, the Commission, in fact, dwelt on
this concern, as a matter of fact. I think that the fundamental
question is this. Should government get just everything it can
get or should it get what it needs. I think that the Commission
did address the issue of whether or not an exemption on sales
taxes on the Internet would necessarily lead to a reduction of
revenue so as to reach that parade of horribles that I think
has been raised--can't buy fire trucks and do those sorts of
things. It was very thoroughly discussed, and I don't believe
that the evidence supports that there will be a reduction in
revenues. To the contrary, the evidence is that revenues will
go up as cyber commerce goes up.
Mr. Wynn. Let me just jump in.
Governor Gilmore. Yes, sir.
Mr. Wynn. If there is a study to support that position,
would you provide it to me, because it sounds as though there's
a lot of speculation about State revenue losses, and it would
seem to me that we ought to have something concrete one way or
the other.
Let me move on because my time is passing. I'm sure you're
familiar with the article by David Ignatius in the Washington
Post where he refers to something called a Gateway giveaway. I
would expect that you would have some concerns about that. I
certain do, and don't really understand why a tax break ought
to be given, even though you actually have a brick and mortar
operation. Could you explain your position on that?
Governor Gilmore. A couple of things. I think you're right
that there's a great deal of speculation as to the horrible
things that will happen if the people of American are not
taxed. I think that's not right, and I think that we will
provide--in fact, all of our information is on the Internet and
available, and we'll provide you with all the evidence on both
sides so that as a Congressman you can make up your mind.
Mr. Wynn. Is there a study on that issue, Governor?
Governor Gilmore. There are numerous studies on all of
these issues, but the truth is, that there is very little
evidence as to what the crystal ball is going to hold in the
future because we really don't know how this industry is going
to develop. Mr. Ignatius, I'm acquainted with him, but I think
he is misinformed in this area. I don't believe that this is
anything except an effort to provide good tax opportunities and
breaks for the working men and women of this State, to have for
the first time in history opportunity to engage in Internet
commerce.
Mr. Tauzin. Will the gentleman yield for a second?
Mr. Wynn. I'd certainly yield, Mr. Chairman.
Mr. Tauzin. The gentleman was asking for a study. We do
have one at the desk. It's by Robert Cline and Thomas Neubig of
Ernst & Young Economics Consulting quantitative analysis, June
18. I would ask unanimous consent that it be made part of the
record. The gentleman may have it.
Mr. Wynn. Certainly, Mr. Chairman, and if there are other
studies, I think we need to get an authoritative analysis of
the impact of sales tax or the loss of sales tax revenues on
the State.
It seems to be a problem with revenues if you're exempting
more goods from sales tax, and I can't understand why the
suggestion is that that's not a problem for the States without
going through, as you say, this parade of horrors. Certainly my
Governor feels that there's a potential problem there.
Governor Gilmore. Congressman, again, we exempt goods and
services all the time, at the Federal level, the State level,
everywhere, that we make a policy decision we just don't want
to tax. We do that all the time. The question, the material
question is does it necessarily mean that we're going to see
such a reduction in revenues as to make it impossible for
States and localities to do what they have to do, and that, I
think, there's no evidence that it's persuasive in that area.
Mr. Wynn. My concern is that we not shift the tax burden
from the State level to the local level, the counties and
municipalities so that they then have to raise their taxes.
That's not really relieving the American taxpayer of a tax
burden. It's just shifting it to a level of government that
probably has less resources with which to cope. I would like
you to respond to this Ignatius article and that Gateway
giveaway, and also to the loophole for digitized content which
seems to create a difference between a CD that is subject to
taxation and a digitized version that's transmitted that would
not be subject to taxation.
Governor Gilmore. The key question here is whether or not
we can afford to give the people of America a tax break in the
area of the Internet, and I think that we can, and that's the
key. The key is not the idea here that somehow there is some
effort by business people to enrich in themselves. These
proposals go to the working men and women who pay the tax, who
pay the tax, not to the business----
Mr. Wynn. I'm going to jump in because I'm sure my time is
about gone, and just say this I don't want to--and I do respect
your position. I don't want to have an ideological debate about
tax or not tax. What I was trying to get at is the basis for
making distinctions in what appear to be similar products and
providing a tax break. I mean, whether we think taxes are good
or bad is really not the issue. The question becomes why aren't
similar items taxed similarly or why shouldn't they be taxed
similarly, and then we'll get to the issue of whether they
should be taxed at all.
Governor Gilmore. Well, again, the issue of whether or not
you extend taxes into new areas of commerce is central to the
thinking of the Commission and, in fact, this entire debate.
With respect to certainly one of the discussions that we had is
the question of whether or not localities or people in bricks
and mortar stores draw, in fact, State services and therefore,
people who go into those stores ought to pay that tax within
that realm. On the other hand, those services are not
necessarily drawn in the Internet area, and therefore there
would be a rational policy basis for making that kind of
distinction. All this was, of course, discussed in the
Commission.
Mr. Tauzin. The gentleman's time has expired.
Mr. Wynn. Thank you, Mr. Chairman.
Mr. Tauzin. The Chair thanks the gentleman. The Chair now
recognizes the gentleman from New York, Mr. Fossella, for 5
minutes.
Mr. Fossella. Thank you, Mr. Chairman, and welcome Governor
Gilmore. I applaud your efforts in the Advisory Commission, and
I think the American people should know that they have someone
who is pro economic growth and pro taxpayer who has chaired it,
so I commend you for your efforts.
I guess just listening to the debate and watching it from
afar, I get the sense that there are so many people in
government who are just fascinated with what's happened in the
Internet, the revolutionary changes that have come across as a
result of that medium, and the economic growth continues to
meet new heights. I guess they're fascinated because they had
nothing to do with it, and now they want to get their greedy
mitts over all this money that they see as an opportunity cost,
when in reality, Governor, and correct me if I'm wrong, the
National Governor's Association collected $11.3 billion in tax
surpluses in 1998, despite tax cuts totaling $5.3 billion in
1998 and $4.9 billion in 1997. An end of year balance for all
States total $35 billion by the end of 1998. In 1999, the
States took in $7.5 billion in tax surpluses, despite
additional tax cuts totaling $7 billion. Sales tax in
particular continued to increase in both 1998 and 1999, and the
States collectively took in surpluses of sales tax totaling
$2.3 billion in 1998 and 1999--$2.2 billion in 1999. Is any of
that not true, Governor?
Governor Gilmore. Congressman, it's all true, and I think
it's goes to the central point here, and that is if there are
sufficient revenues coming in and growing, as a matter of fact,
so that States and localities are awash in funds, why is it
that the people of the United States can't get a tax break in a
particular area? In fact, they don't pay those taxes now for
the most part except the use tax obligations, and I might say
that the States have imposed use taxes, which is a substitute
for the sales tax, and they're basically asking people to sort
of mail it in, but a lot of people don't. I think we ought to
decriminalize the people of the United States and get rid of
that use tax, but that's not a part of the Commission
suggestions.
Mr. Fossella. Well, thank you for that, and confirming what
to be true. Just a couple of days ago, for example, in New
York, the State assembly and Senate and the Governor
compromised on a budget deal that acknowledged that this year
alone, the State of New York taxpayers have generated a more
than a billion dollar budget surplus, so I'm befuddled as to
why those who see budget surpluses across the country now want
to step in and really stop the economic engine that's driving
much of this Nation, both here and abroad.
Let me give you an illustration, Governor, and for those
who might be interested. Staten Island, who I proudly
represent, has an 8.25 percent sales tax imposed on clothing,
State tax and city tax. We lose about a billion dollars in
economic activity to nearby New Jersey that does not impose a
sales tax. A couple of years ago, those of us who push for just
1 week of sales tax free week to give some relief to Staten
Islanders who wanted to stay on Staten Island, not pay that
8.25 percent tax. People spoke with their feet. You know, human
nature and economics 101 worked. In that 1 week alone, sales
increased by over 100 percent in the stores in Staten Island. I
think that's a reflection of what the American people want,
less taxes, not more. If those Governors and those people
around the country want to look to the Internet to tax, to
compensate for their high tax structure, I suggest that they
cut the taxes that already exist and promote economic growth.
So, if you can just carry that back to your other members and
your colleagues on the NGA.
Let me just leave you with a couple of questions, Governor.
Just curious, I know it takes a lot to tango here. What
position, if any, did the Clinton-Gore Administration take on
the Commission, especially with regards to consumer privacy?
You touched upon it before. Is there any other evidence that an
imposition of sales tax on the Internet will stunt the growth
of E commerce, and finally, the international tariffs and taxes
on E commerce present a threat to U.S. global competitiveness?
Governor Gilmore. The three Clinton-Gore Administration
representatives joined the pro-tax block and never deviated. I
think if they were prepared to work with us in order to try to
craft a super consensus on a pro-taxpayer position, we would
have known it. There was never any evidence of that. Even in
the closing days when we were reaching for further discussions
in order to try to bring them around, they never came, and
there was an abstention throughout on any type of pro-taxpayer
positions that were taken. Amazingly enough, even on the
privacy position, an abstention, which I thought was
astounding.
Mr. Fossella. And as much as that this is a global theater
we're playing in these days, the international tariffs or taxes
on E commerce present a threat to U.S. global competitiveness?
Governor Gilmore. It produced an opportunity for us. We are
dominant in the world today because of the growth of this
industry. It is a big advantage to the United States, and I
think we ought--the Commission believed that we ought to
continue to find ways to eliminate tariffs in order to be able
to provide the greatest possible opportunities to the people of
the United States and of the world. I know the European union
would like to impose these taxes. The European union are
experts in imposing taxes, but Americans, I think, are more
forward looking, and I think that we will try to find ways
through international negotiations to try to eliminate these
taxes, especially on E commerce originating in the United
States.
Mr. Tauzin. Then gentleman has just 30 seconds left. Would
he like to----
Mr. Fossella. I just have one more question, then I yield,
if I can, Mr. Chairman. That is, I think it's important, if you
can, Governor. You talked about tax simplification as almost a
code word. If you can elaborate on that slightly and whether
it's--how it's sort of correlated to the Quill decision of the
Supreme Court, and you brought up how it's a code word to try
to merely increase taxes when in reality--Okay.
Governor Gilmore. The law today is that remote sellers
cannot be required to collect those taxes under the Quill
decision. I think that the pro-tax folks believe that if we can
go to a simplification type of approach, then you can find a
way to overpower that court case and, in fact, impose those
taxes. So, we have to be careful because simplification has
become a code word for increasing taxes. I don't think it has
to be that way, and the folks who are not for taxation also
believe that there should be simplification, but not for the
purpose of trying to overturn Quill or to impose a tax regime,
but just simply because it's good for the businesses,
entrepreneurs and consuming men and women of this country.
Mr. Tauzin. The Chair is now faced with two unanimous
consent requests that I want to try to honor. Mr. Wynn has one
and you had one first. If Mr. Wynn will cooperate with me, let
me take care of this one, then I'll recognize----
Mr. Fossella. Mr. Chairman, if I might just yield 30
seconds----
Mr. Tauzin. The gentleman has unanimous consent to yield 30
seconds of time to one of the subcommittee chairman who is not
a member of the subcommittee but wishes to address the point
that he is the author of with reference to Internet access
taxes, I think. Mr. Upton, without objection, it is so ordered.
Mr. Upton. Well, thank you very much. I appreciate the
gentleman's indulgence. I just want to say, and I appreciate
your comments this morning, your leadership on this issue. I
would note that, though I'm a taxpayer and a voter in Michigan,
I'm also a taxpayer in Virginia, so your efforts to lower
property taxes would be good, continued efforts to do that.
Just one thing. As I read and sign all of my legislative
mail, there has not been an issue that has generated more
interest back home than the possibility of the FCC allowing for
access fees or charges to Internet use. I've introduced
legislation that's bipartisan. Many of the members of this
committee and subcommittee, in fact, are co-sponsors, and I
appreciate your comments as part of your statement in support
of my bill that would block that FCC allowed access charge, and
I am working with Chairman Tauzin and Bliley to get that bill
moving, not only in the House but also the Senate. I yield back
the balance of my time.
Mr. Tauzin. I thank the gentleman for his statement. The
Chair would recognize the gentleman from Maryland for a UC
request.
Mr. Wynn. Thank you, Mr. Chairman. Earlier in the
proceeding, you entered into the record a report on the subject
of Internet taxation and impact on the sales tax entitled The
Sky is Not Falling, why State and local revenues were not
significantly impacted by the Internet in 1998. I just wanted
to flag that document and note for the record that this study
was prepared for the E commerce coalition of broad based
national coalition dedicated to providing sound policy
information on taxation of electronic commerce. The coalition
members include America Online, Incorporated and its consulting
Cisco Systems, First Data Corporation, Intuit, Microsoft
Corporation, Time-Warner, Inc. and WalMart Stores.
Mr. Tauzin. Without objection, that is so noted.
Mr. Wynn. Thank you, Mr. Chairman.
Mr. Tauzin. The Chair now recognizes the gentleman from
Ohio, Mr. Sawyer, for 5 minutes.
Mr. Sawyer. Thank you, Mr. Chairman, and Governor, thank
you for your testimony here today and all of the hard work by
you and your colleagues that preceded it and for the additional
comments that you've brought here today.
We've touched briefly on several occasions on the
international consequences of the work of the Commission and
the policy decisions that remain in front of us. In fact,
points 10 and 11 of your testimony deal directly with that.
They speak in policy terms, large principles. I was wondering
if you could share with the members of the committee the
specifics of--let me give you one example. We're talking about
taxation in terms of imposed taxation, but at the same time,
we're talking about trying to create a neutrality with regard
to other forms of taxation--the European Union, for example,
with the widespread use of embedded taxes through the value
added tax. Could you explain to us how the principles that
you're talking about, particularly in point 11, would apply in
the case of embedded taxes like the European VAT?
Governor Gilmore. It's a complicated question. Let me see.
With respect to international tax and tariff issues, there is a
sense that we would like to see, according to the suggestions
of the Commission, to the greatest extent possible, not having
taxes and tariffs be charged on Internet goods, services, and
so ons that are being transferred from country to country. To
the greatest extent possible, we would like to free the
Internet from tariffs, and that is I think the point the
Commission has made.
Mr. Sawyer. I understand the--I fully understand the
policy. It's the one that we, this committee, and others have
spoken to internally within the United States, but almost all
of our taxation, at least in terms of the way in which it deals
with goods and services that might be either transmitted over
the net or in fact, commerce that takes place through the net,
even if it's in real goods and services, those largely involve
super-imposed taxation.
Governor Gilmore. VAT taxes, for example?
Mr. Sawyer. Pardon me?
Governor Gilmore. VAT taxes you mean?
Mr. Sawyer. Oh, no, no, no, sales taxes, as opposed to VAT
taxes, whose costs are embedded throughout the process of
getting it from raw material to the point of sale. How do you
desegregate all of that in ways that would carry out the
principle that you've clearly annunciated here?
Governor Gilmore. I think the Commission felt that to the
greatest extent possible, we ought not to be opposing
additional tariffs, either on goods coming in or going out,
digital goods, transmissions particularly, with respect to
keeping that free flow of that kind of communication back and
forth.
Mr. Sawyer. Did the Commission have any direct conversation
with representatives of the European Union or other major
global taxation regimes that----
Governor Gilmore. Yes, there were, in fact, representatives
from the European Union who came forward to the Commission and
addressed their point of view. We also had a representative of
the International Trade representative on the Commission.
Mr. Sawyer. Would it be possible to share written materials
regarding those conversations so that we might better
understand how the policies or the principles that you've
annunciated here would apply in the real world?
Governor Gilmore. Certainly, and it gives me the
opportunity once again to state that this is a year in which we
have seen everything. We have heard everything. We have
listened to every one, and all of it has been made very, very
public, both on the Internet and otherwise. I'll be happy to
pick out these materials and send them to you directly.
Mr. Sawyer. I very much appreciate that. Thank you for your
time today on that. Let me ask one further question. In the
Ignatius article, he points out the notion that some items, for
example, books, music, electronic games, magazines and
software, that can be digitized. There's a clear intent to
avoid taxation on that, and in order to create a level playing
field, he suggests that you are proposing a migration on the
real world brick and mortar taxation on any goods of that kind
that could be digitized in order to create a level playing
field. Does he accurately represent the recommendations of the
Commission with regard to that?
Governor Gilmore. I think that Mr. Ignatius came at this
from a point of view, and I don't have the article in front of
me. I just remember it when I saw it. I think his point of view
was gee, this is some type of grab. I think that's what----
Mr. Sawyer. I'm not arguing that.
Governor Gilmore. You're not arguing that.
Mr. Sawyer. I'm not arguing.
Governor Gilmore. I believe that----
Mr. Sawyer. Mr. Chairman, I realize that my time has run
out. If I might have unanimous consent just to read a very
brief paragraph.
Mr. Tauzin. Without objection, the gentleman may have that.
Mr. Sawyer. Because you don't have it in front of you, and
that's not fair. A new loophole to exempt from taxes all
digitized content, things that can be sent electronically, such
as music, E books, online games, and software, and their old
fashioned, nondigitized counterparts. In other words, the
Commission would create a special tax exemption for books,
music, electronic games, magazines and software sold in the
brick and mortar world. Is that the intent of the Commission?
Governor Gilmore. The Commission, in fact, made that a part
of its report, and that is correct. I think that certainly from
many of the members' points of view it is just this. If we can
find an opportunity to extend a tax break to the people of the
United States in an area that does not then impinge upon the
necessary revenues of the States or localities to do their
jobs, then we ought to extend those tax breaks. I mean, you can
always, of course, take the position that government can take
every dime that it can get its hands on and spend it, but----
Mr. Sawyer. Obviously I don't take that position.
Governor Gilmore. Obviously we don't take that position. I
think the approach is instead, is it possible to extend further
benefits by way of tax breaks to the people of the United
States, and I think the Commission came down and concluded that
if it is possible to do that, it would be good policy.
Mr. Sawyer. I understand the position you've taken. Thank
you very much, Governor.
Governor Gilmore. Thank you.
Mr. Tauzin. Thank the gentleman. The Chair is now pleased
to recognize the ever patient, ever cheerful, most lovely, the
gentlelady from Wyoming, Ms. Cubin.
Ms. Cubin. Thank you, Mr.----
Mr. Tauzin. You know what I'm doing here. I'm trying to
make up for calling on you so late here, Ms. Cubin.
Ms. Cubin. It's okay. I've enjoyed the discourse. Welcome
to your, Governor Gilmore. I, too, am a property owner in
Virginia and appreciate your attempt to reduce property taxes.
I must express my disdain for those members of the
Commission who abstained instead of voting one way or another.
I can't help but wonder if they were too cowardly to show that
they really wanted to increase taxes or if they were too
uninformed to make a decision or if they simply were unprepared
to do that, and heaven forbid that it could possibly be a
political thing that they did in abstaining, but I do want to
thank you for the work that you did and for the intellectual
integrity that you demonstrated and that other members of the
Commission demonstrated as well.
I have but one question because I know that you really do
need to get going. One of the recommendations that the
Commission's report encourages is for localities to simplify
their sales tax and use taxes in order to create fairness and
parity in Internet sales tax and the traditional brick and
mortar sales taxes. I just wondered if you have any idea how
close or if States and localities are moving in that direction
or if this is yet unchartered territory?
Governor Gilmore. No. I think that there has not been a
track record or simplification. This Commission recognized that
point and suggested that there ought to be incentives for, in
fact, simplifications, but I want to point out that there may
be legal impediments to simplification. Again, as I said, many
localities exist in home rule type of environments where they
have the authority to make these kinds of decisions instead of
taking orders from their State governments.
Constitutional provisions provide, make it very difficult
for simplification as well. The sense of the Commission of
simplification is a good idea, though, but not necessarily, and
again, we fought pretty hard as to whether or not there was
going to be a statement that simplification should
automatically lead to taxes. That was fought out in this
Commission and rejected. Simplification is a good idea, but not
necessarily as a path to further taxation.
Ms. Cubin. Yes, I certainly would agree with that. I know
also that even within States, different counties have different
levels of sales tax and different ways of collecting them.
Thank you very much, and thank you for your work.
Governor Gilmore. Thank you, Congresswoman. That's why it's
going to be very difficult, I think, to create a technological
method without invading everybody's private information, which
I think that the Commission doesn't think's a good idea.
Ms. Cubin. Thank you, Governor.
Mr. Tauzin. Next, the gentlelady from Missouri. Ms.
McCarthy is recognized for 5 minutes.
Ms. McCarthy. Thank you very much, Mr. Chairman. I
apologize for not being here for the full testimony. Governor,
I very much welcome your input today, and I wanted to pursue a
conversation I had yesterday with Bill Gates in a meeting, who
was very kind to come to the Capitol and meet with many of us
concerned about many issues regarding the Internet but in
particular, the taxation of the Internet.
His comment to me was that we should encourage States to
collect the use tax, and that would address the matter. You are
a Governor. You know how difficult it is for States to collect
the use taxes, and in a State like my own, Missouri, are
voluntary. Consumers are supposed to, when they send their
taxes in, also send in the taxes they owe on those purchases
made by catalogs, historically, or out of State sales in some
form or another, particularly if there is nexus in the State.
I just now got a glance at resolution No. 5 in your report.
So, I wondered if you'd please comment on the recommendation of
resolution No. 5 that prohibits sales and use tax on remote
sales of goods and services to individual consumers and
prohibits taxation of sales of digitized goods and products
purchased by individual consumers electronically over the
Internet. How is a State then to cope with the loss of this use
tax, which for Missouri would be about $395 million annually,
if I'm understanding the underlining here by my staff
correctly, would prohibit the collection of it or the
application of it for sale of goods and services to individual
consumers.
Governor Gilmore. Again, I'm not sure what you're reading
from because the discussion of the use tax is not going to be a
part of the final report. I wanted to actually have a
discussion of the use tax but didn't put it forward at the end.
However, I do have made, addressed that in my separate
proposal, and I think I'm the only one that did, in my separate
filing that I'm doing within this report.
Virginia has a bi-annual budget of $48 billion, and I have
felt that the right policy would be to eliminate the use tax
for people--for people. So, you have to compare apples and
oranges here. The use tax, of course, can also be applied
business to business, which is the far bulk of what E commerce
is today. I'm in this to try to help working men and women of
America, so I believe that we probably ought to eliminate the
use tax, business to consumer.
In Virginia, our bi-annual business is $48 billion. I've
asked our treasury how much money are we collecting every year
business to consumer use tax, and the answer is less than a
million dollars a year, out of $48 billion over a 2-year
budget. So, it isn't much money that the States would be doing
without, frankly, to eliminate the tax, business to consumer,
on the use tax. I might say that it is very difficult to
collect. There is no good systemic approach. There is no
technological approach that doesn't invade people's privacies.
People don't pay the tax to their States, and they're all
criminals. I think it's time to de-criminalize the people of
the United States and to eliminate this business to consumer
use tax, but that was not addressed in this Commission report.
Ms. McCarthy. I think what I am reading from, in fact, is
your own personal comments submitted, so it was not part of
whatever----
Governor Gilmore. Well, I stand by that. It's going to be
in the report, but it's my individual submission. I say again,
that every Commissioner has an opportunity to file one of those
with their own personal views.
Ms. McCarthy. Well, I understand your thoughts on the
current application of the use tax in the States. It is not
well collected or remitted. I don't have the Missouri numbers
at hand, but I know the potential for Missouri is $395 million
if, in fact, it were remitted and collected.
Governor Gilmore. And that's all taxes--business to
business and business to consumer, probably because that's----
Ms. McCarthy. Yes, I think that's it.
Governor Gilmore. That's probably everything.
Ms. McCarthy. And in Virginia, it would be about $364
million. I'm raising this because in the area of taxation, I am
very concerned about the mom and pop retailers who keep our
main streets and our communities thriving in Virginia and
Missouri and all over this country. There didn't seem to me in
the context of your Commission a presence of the brick and
mortar businesses that are small mom and pop retailers
established in our communities all across the country, and they
do collect and remit sales tax to the States, and that
collection, remittance of State and city and county sales taxes
is the lifeblood of those governing bodies, and you are well of
this as Governor. It's something that they must, in fact,
depend upon. Do you recommend in your Commission report that
absent those mom and pop retailers, who will, unless they find
out some new creative way to make their sales other than
locally on main street, you know, where they're paying property
taxes for the schools and, you know, they're remitting to the
State the employment taxes and so forth, if they go away go
under or go on to the net, what taxing tools you are going to
offer States, cities and counties so that they may continue to
do the job they must do?
Governor Gilmore. Let me answer you most directly. No. 1,
everybody was represented on this Commission. I mean, every
point of view was represented on this Commission, and everybody
had a chance to have a representative strongly take their
position and furthermore, everybody had a chance to come before
this Commission, no matter whether they agree with any
particular member or not.
Second of all, I think that one of the great myths that is
put out is that is mom and pop small businesses are going to be
hurt by a no tax proposal and therefore we have to impose taxes
on the customers, and that's just nonsense. The fact of the
matter is that small business, for the very first time in
history, have a chance to go beyond the front door of their
store in that limited marketplace and now extend themselves out
over the net and compete with the big businesses and capital
intensive organizations that can afford to do that. So really,
this is not a proposal that is bad for mom and pop businesses.
It is, in fact, good for mom and pop businesses who have an
opportunity to trade in that way.
Finally, the most important point is this. If we go ahead
and put tax obligations on to the mom and pop stores, it's
harder for them because they're smaller, to collect and to
remit and to keep track and to file, and that is the goal here.
The goal here by elimination of those taxes--in fact, it's
going to be a big, super benefit to mom and pop stores.
Ms. McCarthy. I would like to go back to my conversation
with Mr. Gates and disagree with you. He's quite convinced that
with the technology at hand, collecting the use tax is going to
be relatively easy and painless for anyone--individual working
out of their home with an Internet or a mom and pop store. I
think he's got more wisdom--I know he has more wisdom than I do
on the technology, but I've got to think, even from my limited
experience as a visiting Silicon Valley a few times that
there's somebody somewhere there 23 years old that will stay up
all night and come up with a program needed to do this.
I think this debate started in this very subcommittee
because I raised the issues of tax fairness and I remember it
well talking to Mr. Cox that day when he first presented the
bill and saying you know, have you talked to the States, the
Governors, the counties, et cetera, because the sales tax is
their life blood. They've got a whole lot of commitments to the
people they serve locally to carry out things we don't expect
to do at the Federal level, and as a result, your Commission
was created, and it's a very good Commission and a very good
vehicle and a very thoughtful process and 2 years of hard work,
but I don't see an answer yet, and I hope the report will
address it thoughtfully that says here's what we're going to
do. We're going to give the States alternative taxing
mechanisms or we're going to somehow try to level this playing
field. I lived through, as a State legislature, the last time
we shut down main streets all over America when we came in and
provided the tax incentives for the shopping malls and the
WalMarts to build right outside of town, and I watched those
hardware stores close and those little dress shops all up and
down main streets all over Missouri, and I don't want to go
back there.
Governor Gilmore. Right, I agree, and that's in fact the
point of the Commission, as a matter of fact. For the first
time in history, the small guys get a chance to compete on an
equal basis with the big guys. We finally have an opportunity
to do that if we just don't blow this. By the way, nobody is
suggesting the elimination of the sales tax anywhere. This is a
question of whether or not sales tax is extended into a new and
similar form of commerce and whether that will have dire
consequences, and the Commission just didn't find them.
Ms. McCarthy. Mr. Chairman, I hope that our subcommittee
grapples with this particular issue a little bit further in the
future. I don't want to delay the committee's work today, but I
have a feeling when we visit again on this in the future and we
revisit your thoughts on it, we'll have better information to
know just where we're going. I would hope that's what the
Commission would have provided us, but maybe we as a
subcommittee, Mr. Chairman, must resolve that on our own. Thank
you.
Mr. Tauzin. Thank the gentlelady. The Chair would like to
observe that he, too, can comment as to who has more wisdom,
you or Bill Gates, but at least you're not in the middle of a
big lawsuit.
The Chair recognizes the gentleman from California, Mr.
Cox.
Mr. Cox. Governor Gilmore, I think the topic currently
under discussion is worth pursuing. It really did animate our
discussions at the time that Ron Wyden and I were first
pioneering the Internet Tax Freedom Act. I will point out that
a handful of Governors, our Governor in California, Pete
Wilson, and first Governor Allen and then Governor Gilmore in
Virginia, were among just a handful of that Nation's Governors
early on to see the wisdom of permanently banning
discriminatory taxes on the Internet. That's really what we're
talking about, I think.
The Internet Tax Freedom Act, which created the Commission
and also banned these taxes, as you point out, didn't come
close to banning sales taxes in America. To the contrary. It's
my understanding, and I want to ask you about the Commission's
findings on this point, not just your formerly voted upon
findings but the research work that you did preparatory to
making your recommendations. It's my understanding that tax
collections to State and local governments from the sales tax
during the period of time that the Internet economy and E
commerce have exploded have gone up, not down. That, in fact,
we have record sales tax collections. That's our experience I
know in California, and I wonder if that's what you found in
looking at this as a national problem.
Governor Gilmore. That is correct, Congressman Cox. The
growth of the industry is different. It's exciting. It's an
opportunity. Revenues, in fact, are going up, not down. Now, my
goal in life is to try to have the people of the United States
share in this, and that means that if we could give them an
opportunity to do business and to have their opportunity as
individual working men and women to participate in the Internet
without taxes, it's a benefit to the people of the United
States and we should be loath to pass it up.
Mr. Cox. How about this issue of businesses on Main Street
being put at a disadvantage by the Internet? The premise of
that argument is that we've got the bricks and mortar economy
over here. We've got the new cyberspace economy over here, and
the new economy is eating up the old one. My experience, again,
in California which may not be typical, which is why I want to
address this to you as the chairman of this national
Commission, is that we have rather rapidly over the last few
years moved away from that stark division of E commerce on the
one hand, bricks and mortar on the other, to what might be
called bricks and clicks, that people with long established
retail businesses are taking full advantage of E commerce, that
people with long established wholesale businesses are starting
to conduct their business to business work that way. It is not
a displacement of one with the other, but rather Main Street is
now reaching new markets that they couldn't reach before.
They're not limited to the people who live within a three mile
radius of their storefront. They can reach people in Japan or
in Finland. Is that what you have seen?
Governor Gilmore. Yes. We have, of course, an example we
use over and over again of a company that deals in agriculture,
sells peanuts basically, at a local place off of the road in a
remote area. Now they're selling these gourmet peanuts to the
entire world. They have opened up their market, and they have
opportunities. Clicks and mortar is going to be more and more
the rule, and it's an opportunity, not a problem, for small
business.
Mr. Cox. Governor Gilmore, you've been very kind to take my
additional questions. The Chairman was kind enough to yield me
the opening round, and I want to yield the entirety of the
balance of my time in the next round as well to the Chairman.
Mr. Tauzin. I thank the gentleman. Governor Gilmore, you
pointed out in your report to us that taxation of telephones,
which are one of the carriers of the Internet, does amount to a
tax on the Internet, in effect. I was privileged to read a
report not long ago--I think I sent you a copy--by Progress and
Freedom Foundation that indicates that taxes on telephones have
gone up as much as 62 percent in the last 12 years, indicating
an extraordinary explosion of taxes that directly impact the
Internet. In fact, there are some jurisdictions in America
where there are more taxes on telephone usage in America than
there is on tobacco, which is a rather extraordinary thought in
a free speech society.
Is it your personal view, and did the Commission in
whatever majority, super majority, whatever form it took, did
the Commission feel, as I do, that this load of taxes on the
carriers of the Internet, amount to a form of Internet taxation
that we ought to seriously look at reducing?
Governor Gilmore. Yes. I think that the Commission,
certainly on its 3 percent excise tax, addressed that issue and
pointed out that these kinds of burdens on access weigh
particularly heavy on people who have lesser means, who
sometimes can't get telephone or they have a hard time paying
for the extra dedicated line for the Internet because of the
additional taxes. So, any reduction in tax is a liberation to
the people of the United States for the use of the Internet.
Mr. Tauzin. Now, I think I know the answer to this because
you and I talked about it, but as I understand, the Commission
did not get into the question of whether or not there is an
unequal tax treatment, depending upon what Internet service
people are buying. That is, if I'm buying my service through a
cable company or I happen to buy it through a satellite or
terrestrial wireless company, I might pay less taxes on that
Internet service because those carriers pay less taxes than the
telephone company is required to collect from me and pay to
various local and State and Federal Governments, isn't that
correct?
Governor Gilmore. Yes, but I think again, the Commission
did not fully address the alternative forms, other than to
point out that to the greatest extent possible, we should
reduce costs so that more people have access to the Internet.
Mr. Tauzin. And you did, indeed, focus on the question of
access to the Internet, that apparently you spent a lot of time
thinking and talking about generally about the importance of
this phenomena, the Internet, to the success of families, of
working men and women and their children and their families, in
this new society. You put a great emphasis on making sure
everyone had access to it. I want to, first of all, commend one
of your communities in Virginia, Blacksburg, Virginia, which
was I believe the first community in America which decided to
become a totally Internet wired up town, all connected to the
University of Virginia Tech's intranet system, something we're
trying to replicate in my own State now.
The notion of everyone connected, everyone a part of the
Internet is obviously pretty strong in your report. I wanted to
take it the next step. We're beginning to see the deployment
and the rapid expansion of Internet capabilities under high
speed of broad band Internet services, and I wonder if the
Commission spent any time at all differentiating between the
old Internet services and the new broadband services that are
going to make a lot of difference in terms of whether the small
mom and pop business will be able to compete in the high speed,
broad band world, or did you not even get into those issues?
Governor Gilmore. No, I think we did not address those
issues, Mr. Chairman.
Mr. Tauzin. If I can make sort of a point there that I
would hope, as you go forward and finalized your own comments
on this, that the point you made with Mr. Cox about the
Internet becoming a vehicle by which small, competitive
businesses can become competitive with the biggest businesses
anywhere in the world because of the Internet, that point
becomes almost moot in a broad band world, where if the only
service that small community has and the only service that
small business has, is the old Internet, the old simple
Internet, rather than the broad band, high speed Internet
that's going to make literally an entirely new world of
economic opportunity available to them. It is going to make a
big difference as to whether or not--whether we tax or not tax
those small businesses have the opportunities you discussed
with Mr. McCarthy, and I just want to put on the record,
because it's an issue that I'm very close to and pushing very
hard in this Congress, that access to broad band services will
perhaps be even more important than access to the old Internet
services. I would just like to highlight that in connection
with the emphasis you have put on the need to have access to
all of the folks in your community.
The gentleman's time has expired. The Chair will now
recognize the gentlelady, the----
Governor Gilmore. Mr. Chairman, may I ask for a 3-minute
recess, please?
Mr. Tauzin. Yes. I'm sorry. The Chair will declare a 3-
minute recess, and we'll return in 3 minutes.
Governor Gilmore. Thank you.
[Brief recess.]
Mr. Tauzin. The Chair will declare this subcommittee back
in session.
Governor Gilmore. Mr. Chairman, thank you. There are some
issues the Internet can't address. I appreciate that.
Mr. Tauzin. Well, you were signing bills, I know, and we
wanted to accommodate you.
We now recognize the gentlelady, Ms. Wilson, from New
Mexico.
Ms. Wilson. Thank you, Mr. Chairman. Governor Gilmore, I
found your testimony to be refreshing and your answers to
questions to be refreshing in looking to the new economy and
the benefits that it brings to America, particularly the
statement that the Internet changes everything, including
government. It's certainly changing things around here. I don't
know if this hearing is streaming across the Internet, but they
often do from the Commerce Committee, and I'm now finding in my
office that I get more electronic mail than I get snail mail,
that we're doing more constituent services on the Internet and
providing more information on the Internet to constituents.
We've gone from vote.com to direct input on pending votes
from my constituents on our web site, and it is completely
bilingual so that you can toggle back and forth between English
and Spanish and provide that kind of direct constituent service
to people.
I also take your point about getting beyond the front door
for little companies, whether it's Bueno Foods for those of you
who just can't yet get your green chili fix on the east coast,
you can log on and buy it directly on the Internet.
I have a couple of questions for you based on your
experience as a Governor. You talked in your testimony about
the Virginia Diner, and you talked briefly about it in the
answer to someone else's question. When you talk to folks in
Wakefield, Virginia about the success of VaDiner.com and the
can of peanuts that they may sell for $1, when you go down the
street to the Stuckey's and talk to them about the fact that
they have to charge $1.06 or $1.05 for that same can of
peanuts, how do you explain it to the folks who aren't yet part
of that new economy? How do you answer the fairness question?
Governor Gilmore. Well, I think that you answer it this
way. I think you ask yourself the question, is there an
opportunity, in fact, for Stuckey's to go online, for them to
open up and do something entirely different and to, in fact, go
online and become sellers themselves, and of course the answer
is that there are. From the government's point of view, you
have an opportunity here for new jobs to be created in the
Internet economy. The Virginia Diner example, for example,
there are new people that are now being employed. They're going
to be paying income taxes, so those kinds of funds are there.
In terms of a fairness issue, the question is really what's
fair to the people of the United States. Isn't there an
opportunity here for them to make purchases and to have those
changes to do that without paying taxes?
Ms. Wilson. I guess the only other question that I'll ask
you and then I'll yield the balance of my time is we've seen
explosive growth in the Internet, but it's still a fairly small
percentage of our economy and most of the Internet sales is
still business to business as opposed to business to consumer.
If you look at where we're going to be 5 or 10 or 15 years from
now, it may be a much more significant percentage of our
economy. How, as a Governor of a State do you see your revenue
streams changing from a way--you have sales tax as well as
income tax.
Governor Gilmore. We do.
Ms. Wilson. I understand you may not have car tax anymore,
the property taxes. How do you see your income streams
changing, and how, if you were the Governor 10 or 15 years from
now, would it look different than it is today?
Governor Gilmore. I think nobody has a crystal ball, so
it's impossible to speculate. There are many people today that
are asserting that the growth of E commerce is going to destroy
other things around it, and there just isn't the facts to
sustain that or to substantiate that. The question is, is the
sales tax going to be diminished? There's no evidence that it
is. Is there an opportunity to reach for more revenues?
Certainly, and you could perhaps reach into that area and get
additional revenues, but the question is what revenues do you
need and are they going to be diminished? Right now the
evidence is not there to show that the sales tax is going to be
diminished in Virginia or anywhere else in America.
Ms. Wilson. Thank you, Mr. Chairman. I yield my time.
Mr. Tauzin. The gentlelady's time is expired. The gentleman
from Mississippi, Mr. Pickering, is recognized for 5 minutes.
Mr. Pickering. Mr. Chairman, thank you. Governor Gilmore,
my question or line of questions starts with the moratorium
under your recommendation is extended 5 years to October, 2006,
is that correct?
Governor Gilmore. I believe that that is, in fact, what the
proposal will be, yes, sir.
Mr. Pickering. Do you think that there's anytime during
that process or at the end of that moratorium, should we re-
assess, should we look at how the conditions, how the market,
how the technology, is affecting commerce, both main street and
electronically, to make a decision at some point in the future
whether there should be some type of uniform tax, or should the
Internet effort come under a tax. Is it your position that it
should be tax free forever?
Governor Gilmore. While I believe that was probably the
best policy, we debated and questioned both privately and also
in public among small groups and larger groups as to what the
proper approach ought to be. There are many people that believe
that the moratorium ought to be permanent. I believe that this
proposal will come forward and suggest and 5 year extension.
Then of course, it would be very reasonable at the end of that
5 years to take a second look at see where we are.
Mr. Pickering. You had mentioned in your other comments
about a business to consumer use tax and doing away with that.
What are the consequences or what would the consequences of
doing away with the business to consumer? We're seeing great
advantage of business to business E commerce. If you did do
away with the business to consumer use tax, what are those
ramifications?
Governor Gilmore. None, except for the fact that individual
working people wouldn't have to necessarily pay the use tax,
and if they don't think to do it or don't do it because it's
unenforceable, they're not criminals anymore. There's no reason
why a State or the United States couldn't adopt a policy that
says that you still do have the use tax on business to
business, which at this point is the biggest bulk of the
Internet commerce that is going on.
You see, the practical reason is this. There are two things
that I want to say in response to this. The first is that you
can technically collect a business to business use tax. You can
do that. By routine audits and that type of approach, you can
do that. You technically can't collect the use tax over the
Internet because the privacy and the technological ability to
do it just isn't there, just isn't there.
The second point is this. My goal is to do something good
for the people of the United States, for the citizens of the
United States, not necessarily just the businesses of the
United States, although certainly commerce and opportunities
for people to grow as the American economy grows, but this is a
chance for people to have a chance to have--not to have to pay
that use tax. So, my emphasis, again, there wasn't much
discussion of the use tax in this Commission. I would like to
have raised it, but just declined to do that because I thought
that the other approaches that we had were so material and so
helpful to the Congress that we would address the use--I would
have wanted to address the use tax individually myself, and
that's what I did.
My goal here would be to eliminate the use tax from
business to consumer because it helps people, especially people
of modest means.
Mr. Pickering. Has anyone ever quantified or tried to
quantify the business to consumer use tax?
Governor Gilmore. In Virginia I did. As I said, I asked my
folks, I said what is it that we're going to miss if we abolish
this? What is it we're getting that we'd be doing without. The
answer is less than a million dollars a year on a bi-annual
budget of $48 billion, $48,000 million, if you will. So, it's
not very much money. So, the question really is this. Does
government have an opportunity here to give a really good tax
cut to people and to release them from a legal obligation that
criminalizes them when they don't pay it, and to do a real
benefit just for working men and women across this country and
for families and for people, with very little impact upon
government itself. The answer is yes. So, why not do this
instead of just simply hold on desperately to that last dollar
of revenue when, in fact, what we're seeing is a boon in the
wash of revenue as a result of growth of this industry.
Mr. Pickering. Mr. Chairman, let me just close with a
comment, and join with some of my other colleagues who have
commended your leadership. You are a Governor of a rapidly
growing State, with a high tech economy. That growth,
especially in northern Virginia, is spurring benefits for all
of us. It is really remarkable to see, the difference the high
tech economy can make. You know, when I came to Congress and
cast my first vote, I saw on the lights ``yea,'' ``nay'' or
``present.'' I looked at that ``present,'' and I said that
would be the greatest advocation of my duty if I ever pushed
that ``present'' button. So, I want to commend your leadership
with taking a position. Agree or disagree, you took a position.
You're advocating, you're defending it, and it is very
disappointing to see the Clinton Administration, and I try to
be bipartisan when it comes to telecommunication and technology
on policy, but to abstain in this important matter, I think
it's a great advocation of leadership, of responsibility, and
it definitely would not go down into the book of profiles of
courage. So, I commend your leadership and look forward to
working with you on these issues in the future.
Governor Gilmore. Thank you, Congressman.
Mr. Tauzin. The gentleman yields back the balance of his
time. The time of all members has expired. Governor, I'm going
to recognize the ranking minority member, Mr. Markey, for final
comments. I will have a few, and then we will thank you very
much for the generosity of your time and effort here. Mr.
Markey.
Mr. Markey. I thank you, Mr. Chairman. I know that
Commissioners Jones and Kirk and Leavitt and LeBrun and Locke
actually have their own detailed proposal as well. It's not as
though they're absenting themselves from the debate. it is that
they have their own detailed proposal which they----
Governor Gilmore. Indeed.
Mr. Markey. [continuing] which they believe should be put
in place as an alternative.
Governor Gilmore. Indeed.
Mr. Markey. I don't know what the nature of the abstention
was, but I don't think it's for lack of having a substantive
alternative. With that said, I do agree with the gentleman from
Mississippi and everyone else who has complimented you on your
exceptionally articulate presentation of your perspective on
this issue today. It was a very impressive performance, and we
thank you for it. It helps to really tee up this issue before
this committee and before the entire Congress.
As I said in my opening statement, as we proceed in
deliberations on this subject, it's important to stay focused
on the central issues of any tax related matter. Is it a fair
tax? Is it a fairly and equitably assessed tax? Does the tax
raise revenues to meet the stated government needs, whether it
be fire and police and education, or on the national level, for
Medicare and Medicaid and other purposes, including defense of
our Nation? Does the tax promote a specific goal for our
society and economy?
I think what we heard this morning essentially distilled is
the question of whether taxing the Internet is a necessary. The
flip side, however, of the question is whether the giving of
the Internet of a special tax break is a necessity or not. Is
it equitable or not? I look forward to continuing the
discussion on that subject as well.
I think that the Governor has done an excellent job. I hope
that the subcommittee continues to bring in experts on the
subject. We can benefit from all of the incredible time and
effort that they expended in distilling this debate down to a
form which I think is now highly useful for Congress, and I
thank you, Governor, for your excellent presentation.
Governor Gilmore. Thank you, Congressman.
Mr. Tauzin. Thank you, Congressman Markey. Finally,
Governor, on a personal note, on behalf of my children, thank
you for doing all you've done to reduce that awful car tax in
Virginia. They have all asked me to personally tell you that,
and I'm sure you hear that a lot from folks in Virginia.
Second, to thank you for the extraordinary time you've given us
today and the effort you put into this. Mr. Markey has said it
well when he said that your presentation has been
extraordinarily articulate and to the issues for us.
Second, to point out that, I think I referred to this
earlier, but you know that Dick Armey and I have gone around
the country. Others are doing the same thing now, talking about
an alternative form for Federal taxation as it applies to the
States. There is talk about going to a national sales tax. I
know that you were asked that question, and I know you did not
consider it as part of the Commission's work. I simply wanted
to point out that if there is ever going to be a
rationalization of this system, it may be on some level like
that, either a declaration nationally or the nexus issue, as
you recommended to us or some alternative that makes sense
nationally.
The bottom line is that not all of us share the view that
in the process, we have to guarantee government's level of
income. Second, the government has an obligation in many of our
views to use some of the efficiencies of the Internet to cut
down its own expenditures and to save money the way many
companies and many individuals are saving money through the use
of these technologies today. All of that has to be factored in
here somewhere.
The bottom line is you have added to our discourse today. I
realize we could have waited until the report was filed, but
you have come in early and given us a summary and helped us
immeasurably. We thank you for that. We thank you for, indeed,
the service you've provided for the country because these
issues will not go away. My guess is we will be looking at an
extension of the moratorium that Congress has passed before
this committee very soon, and we will continue to seek your
counsel and advice as we go forward.
Mr. Markey. Mr. Chairman, if I may, briefly.
Mr. Tauzin. Yes, Mr. Markey.
Mr. Markey. Yes, in addition to your work in doing away
with the automobile tax in Virginia, if, Governor, you could by
some way in which everyone of us in this country and all around
the world was able to re-register our cars online so that we
could do away with the Department of Motor Vehicles of the
world, I think each of us would be willing to support you for
world commissioner. I think you can skip any other ambitions
you might have that would be as an intervening career step
before you reach world commissioner status. Those of us
continue to work on that particular area of expertise.
Mr. Tauzin. And those of us who don't believe in one world
government would ask you to seek some other great advancement
in your career.
Thank you so much, and the hearing stands adjourned. The
Chair wishes to announce that the subcommittee will reconvene
at 1 for the consideration of our second issue, which is the
issue of uniform sourcing.
[Whereupon, at 12:18 p.m., the subcommittee recessed, to
reconvene at 1 p.m., this same day.]
[Additional material submitted for the record follows:]
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