Statement by Majority Leader Bill Frist

Internet Tax Moratorium

Mr. President, on November 1, 2004, the most recent Internet tax moratorium expired. In the weeks prior to and following this expiration date, I have been trying to broker a compromise between those who, like me, support making the moratorium permanent and those who oppose a permanent extension. Unfortunately, we have been unable to reach resolution on legislative language that would allow us to make the moratorium on Internet access technology neutral and permanent. However, I remain committed to passing a revised moratorium next year which ensures that all Americans can receive Internet access tax free, regardless technology.

I respect the arguments of those Senators who are concerned that the language in S. 150, the Internet Tax Nondiscrimination Act, will infringe on the ability of States to tax traditional telecommunication services. Because of their concerns, I allowed the bill to be fully debated on the floor of the Senate for several days. In the end, after spirited discussions, the relevant parties could not reach agreement on appropriate language and the current moratorium had expired.

After that process failed to achieve a resolution, I sought to broker a compromise by laying out a menu of options from which the parties could choose. None of these options were perfect, and none went as far to protect the Internet from taxation as I would have liked. But in the spirit of compromise, I believed that taking some action was better than doing nothing at all. Unfortunately, the various relevant parties disagreed. Every option I suggested was rejected by both sides and both indicated that no deal was better than any of the options I had set forth. As an aside, this was the first, last and only moment when the various parties were able to reach agreement with respect to anything having to do with taxing the Internet.

At this point it became clear to me that no agreement was in the making with respect to a permanent or even multi-year extension of the Internet tax moratorium. I therefore suggested that we pass, as a part of the omnibus appropriations bill, a so-called “Internet-tax CR” – basically an extension of the expired statute to cover the gap between November 1 and the second session of the 108 th Congress when the Senate would be able to return to this issue.

My concern was that if we did not extend the moratorium, the Internet would be open to multiple and discriminatory taxes for the first time in five years. And while a simple extension would not have addressed the troubling efforts in several States to begin taxing DSL access, I still believed that doing something was better than doing nothing. Further, I was prepared to make it clear that the spirit of the original moratorium was intended to make all Internet access tax free, and that extending the current moratorium should not be an invitation for any State to continue or begin anew taxing DSL.

Much to my disappointment, even a simple extension of the original moratorium failed to gain consensus support. And even when we agreed to consider modifying the original language to prevent states from taxing DSL for the duration of this Internet-tax CR, the House of Representatives was unwilling to agree.

As the strong bipartisan support of the Internet moratorium indicates, there is a growing consensus that the Internet should never be singled out for multiple or discriminatory taxation and that all forms of Internet access should be tax free. Rather than finding new ways to tax the Internet, the unprecedented benefits it offers to our society and economy should be encouraged by policymakers at the federal, state and local levels. We must not allow differences over details of the moratorium to result in tax policies which damage this critical economic engine of the future. The Internet is too important.

I would like to specifically thank Senator McCain, Senator Sununu and Senator Allen for their excellent leadership and dedication to this issue. Their efforts have ensured that this important technology issue receives the attention it deserves from Congress. As Majority Leader, it is my intention to work hard to get the strongest, longest ban on Internet taxes as possible. As such, I will make passing a meaningful, revised Internet tax moratorium a priority for next year.