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The Tax Ban That Almost Wasn't
by Teri Rucker
Rarely does the Senate approach an important vote with no idea of the outcome, let alone an issue where a key industry group will grade members on the vote. Such uncertainty, however, in part delayed Senate action on the Internet tax moratorium.
When lawmakers went to the floor the week before Thanksgiving, they did not know whether proponents of the House-passed, two-year ban would prevail or whether supporters of a five-year moratorium that also would address state sales-tax simplification would be victorious. "No one knew for sure what the outcome would be," said Barry Piatt, spokesman for Sen. Byron Dorgan, D-N.D., who backed the five-year ban.
So the decision was made to just decide the issue on the floor. "We could either argue ad infinitum or we could do something," Piatt said. With pressure from high-tech groups, state officials, retail organizations and telecommunications firms to vote, he added, "continuing to try to work things out without resolution into infinity was not much of an option."
All In Favor, Say 'Aye'
Before any congressional vote, staff members and lobbyists busily tally support for a variety of reasons. No one wants to be embarrassed by a resounding defeat, and supporters, as well as opponents, want the opportunity to lobby undecided lawmakers or craft compromises.
In the case of Internet taxation, the House in mid-October voted to ban Internet access taxes for another two years, acting just before the moratorium expired Oct. 21. That bill, H.R. 1552, went to the Senate but needed unanimous approval to be considered by that body.
Industry groups became worried that Congress would adjourn for the year without addressing the issue, raising the possibility that states, losing revenue from the slumping economy and increased law enforcement costs, would call in the tax man to target Internet access and perhaps sales.
Going into the Senate vote Nov. 15, an optimistic count put supporters of the House's two-year ban at 52, but the count in reality was about 20 to 27 in support and seven undecided, with the rest merely leaning toward the two-year ban, according to a Senate aide. In the end, 57 senators rejected the five-year ban and call for a congressional role in state sales-tax simplification proposed by Michael Enzi, R-Wyo., and 43 voted for it.
"We had some idea what was going to happen, but it was a cliffhanger," the aide said, and as staff members were tallying the vote on Enzi's proposal, "jaws were dropping."
Votes from influential senators such as Democratic Majority Whip Harry Reid of Nevada, Democrats John Edwards of North Carolina and Edward Kennedy of Massachusetts, and Republican Ted Stevens of Alaska helped turn opinion in favor of the two-year moratorium, and each of their votes was a surprise, the aide said.
What's That We're Voting On?
Part of the problem in gauging opinion on the issue was logistical. With one Senate office building closed due to anthrax contamination and others intermittently shut for testing, staff members and lawmakers were scattered. Simply tracking someone down to find out what they thought about the tax ban was tricky, both industry and congressional sources say.
The biggest problem, however, was the complexity of the issue. Many lawmakers wrongly believe the moratorium bans taxes on Internet sales. In reality, it applies only to access taxes and multiple or discriminatory taxes on the Internet.
A Supreme Court ruling governs the sales-tax issue, and it prohibits a state from compelling a firm with no physical presence, or nexus, to pay sales or use taxes. Unless the Supreme Court reverses its decision or Congress passes a law giving states the go-ahead to tax sales from an online firm with no nexus, those taxes are not legal.
Much of the debate has been tied to the tangential issue of determining a way to simplify state sales-tax systems with the eventual goal of taxing online sales. Enzi and Dorgan have worked with a handful of other lawmakers over the past three years to craft a simplification plan. It is a complex issue that "doesn't lend itself to talking points very easily," an industry source said.
Even on Nov. 15, some lawmakers still believed they were voting on whether to ban online sales taxes, the source said. "The facts became so skewed that they became the 'new facts,' and we had to overcome the perception to argue our case."
A promise from the Information Technology Industry Council (ITI) to grade the vote helped sway lawmakers to reject Enzi's bill, another Senate source noted. On Nov. 15, ITI announced its support for the two-year ban and vowed to include the vote in its "High-Tech Voting Guide." With the feeling that Enzi's amendment would lose anyway, it caused many members to ask why they would blemish their tech voting record for no good reason, the Senate source said.
Hold It Right There, Mister
The Senate rules added another layer of complexity. For legislation to reach the floor, it either must win committee approval or unanimous consent for a vote. If one senator disagrees with a proposal, he or she can delay it indefinitely.
Dorgan, for example, blocked attempts by Sens. Ron Wyden, D-Ore., and George Allen, R-Va., to consider the two-year moratorium, and they, in turn, rejected Dorgan's bid for a vote on his plan to extend the ban until next June.
Then there is the "hold," a procedure that allows a senator to block consideration of any bill for any reason -- and to do so anonymously. Several holds, some related and others unrelated were placed on the House bill and the Enzi amendment.
Sen. Paul Wellstone, D-Minn., blocked all Republican-sponsored legislation until the senator who anonymously delayed a vote on his bill for homeless veterans removed the objection or acknowledged the hold. Sen. Phil Gramm, R-Texas, also delayed debate on the moratorium, fearing that the Enzi proposal would pass. Gramm wanted to be able to offer an amendment to increase the number of states that would have to join a compact on simplifying sales taxes, and he negotiated that privilege right before releasing his hold.
Enzi's repeated tinkering with his amendment also delayed a vote, as lawmakers scrambled to understand the changes.
An Extension Or Bust
Persuading one lawmaker or another to release his or her hold was frustrating, but the process worked well in making everyone forge a compromise, said Neal Osten, director of the National Conference of State Legislature's Commerce and Communications Committee.
When Wellstone's hold thwarted debate Nov. 13, moratorium watchers gave up hope for a vote before Thanksgiving because the rest of the week was to be dedicated to the economic stimulus package. But Republicans unexpectedly killed that bill, opening room on the schedule.
Even seconds before the Internet tax vote, lawmakers still were negotiating. But there was a sense that it was now or never, sources said. Lawmakers decided to "just start the ball in motion, and either they will win or we will win, but at the end we will have an extension," Piatt said.
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