Senate Floor Speech
Senator Kay Bailey Hutchison
April 27, 2004 -- Page: S4405

MRS. HUTCHISON. Mr. President, I thank the Senator from Arizona, the chairman of the Commerce Committee, and the distinguished ranking member, Senator Dorgan, for bringing this to the floor. As has been said by everyone, I think, we have been talking about this issue for a long time. It is such a crucial issue for many States and many cities, that we must get it right.

I think the bill of Senator Allen, the underlying bill, and now the bill of Senator McCain are attempting to do something that is right. They are attempting to assure that interstate commerce is not obstructed by taxes on Internet access.

I am afraid, however, that the language is not clear enough as it deals with franchise taxes and right-of-way fees that have been in place in cities in many States in our country for a long time. That is why I have introduced an amendment that will clarify the definition of what is excepted from this Internet access tax ban. It says:

..... any payment made for the use of a public right-of-way or made in lieu of a fee for use of the public right-of-way, however it may be denominated, including but not limited to an access line fee, a franchise fee, license fee or gross receipts or gross revenue fee.

I think we have found out since we started debating this issue years ago that cities determine their franchise fees, their right-of-way fees, in many different ways. I think it is very important that we not make a mistake here that would cause years of litigation, after which a city might win, it might lose, but it would certainly disrupt what it has been doing. The franchise fee is basically a local tax, not on Internet access, not meant to be on Internet access.

My position is that we should not tax Internet access. I do believe it is a taxation of interstate commerce. However, I think that once you get off the basic access, just as we have telephone lines' access, use of right-of-way, that we must create a level playing field so a line that is used for telephone and an Internet computer line will be able to be taxed in the same way.

In my State of Texas, prior to 1999 cities were compensated by telecommunications providers for the use of their rights-of-way pursuant to individual franchise agreements negotiated between the telecommunications company and the cities.

In the late 1990s, Texas cities and the providers began negotiating and drafting major compromises that would lead to more uniformity, more regulatory certainty. So the Texas law has established a uniform method of compensating cities for use of public rights-of-way. It is called a per access line fee. It is implemented to compensate cities for use of public rights-of-way.

The access lines are reported by the individual telecommunications providers to the Texas Public Utility Commission. The PUC then applies the individual city rate per access line to the total number of lines that a particular city may have within their corporate limits. It is a fair and equitable system that is used in Texas. An average city gets about 3.5 percent of its general revenue from telecommunications right-of-way compensation fees.

Passing Federal legislation that would call into question the validity of this Texas system could have disastrous effects on the ability of Texas cities to provide essential services such as police and fire, water, waste water, and parks, just to name a few. The right-of-way fees represent as much as $39 million annually to the city of Dallas; $9 million for Fort Worth; and $15 million for the city of San Antonio.

Cities in California, Nevada, Florida, Kentucky, and other States would also be adversely affected by the bill as it is written. So I am trying to clarify why franchise fees should be included. I am hoping we are all trying to go in the same direction here. I just want to make sure that we don't make a mistake.

There will be people who say it is really covered. It is covered in the underlying law. It is covered in the amendment that is offered by Senator McCain and the one underlying by Senator Allen. People will say that. However, it is not clear and the city attorneys and these Texas cities and other States have looked at the language and they are very concerned they are going to be in litigation over this issue. If we know today that it is not clear, after the lawyers have looked at it, why not be sure? Why not be sure?

Everyone I have talked to believes that right-of-way and franchise fees should not be disturbed. It is part of the level playing field we are trying to create. My amendment will make it very clear what is accepted by definition. This should not have any impact on Internet access as both of the underlying bills would try to protect that from taxation. But it does protect cities, particularly since we have certain laws in some States that do have a component of a gross receipts fee within the access line issue, and I hope we will not step on a State with its local issues, trying to stay consistent with what has been done and accepted through all these years by passing this law without being very clear.

Mine is a clarification amendment. This is, of course, not to put a new tax in place. This is to try to acknowledge that different cities and different States have different definitions of franchise tax. It happens that in Texas there is a gross-receipts component in the franchise right-of-way access tax. It is a standardized law now for the cities of Texas, for cable companies and telecommunications companies.

We have a different definition which I am trying to protect. Certainly these cities have already made their contracts with their cable companies. This is not meant to change contracts; it is meant to allow the contracts which are in existence and use a well recognized and different definition of franchise or right-of-way tax.