[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3529 Introduced in House (IH)]







105th CONGRESS
  2d Session
                                H. R. 3529

  To establish a national policy against State and local interference 
  with interstate commerce on the Internet or online services, and to 
     excise congressional jurisdiction over interstate commerce by 
  establishing a moratorium on the imposition of exactions that would 
  interfere with the free flow of commerce via the Internet, and for 
                            other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             March 23, 1998

  Mr. Chabot introduced the following bill; which was referred to the 
Committee on the Judiciary, and in addition to the Committees on Rules, 
 and Ways and Means, for a period to be subsequently determined by the 
  Speaker, in each case for consideration of such provisions as fall 
           within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
  To establish a national policy against State and local interference 
  with interstate commerce on the Internet or online services, and to 
     excise congressional jurisdiction over interstate commerce by 
  establishing a moratorium on the imposition of exactions that would 
  interfere with the free flow of commerce via the Internet, and for 
                            other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Internet Tax Freedom Act''.

SEC. 2. FINDINGS.

    The Congress finds the following:
            (1) As a massive global network spanning not only State but 
        international borders, the Internet and the related provision 
        of online services and Internet access are matters involving 
        interstate and foreign commerce within the jurisdiction of the 
        United States Congress under Article I, section 8, clause 3 of 
        the United States Constitution.
            (2) Even within the United States, the Internet does not 
        respect State lines and operates independently of State 
        boundaries. Addresses on the Internet are designed to be 
        geographically indifferent. Internet transmissions are 
        insensitive to physical distance and can have multiple 
        geographical addresses.
            (3) Because transmissions over the Internet are made using 
        computer protocols, in particular the Transmission Control 
        Protocol/Internet Protocol, that utilize packet switching 
        technology, it is impossible to determine in advance the 
        precise geographic route over which individual Internet 
        transmissions will travel; and it is therefore infeasible to 
        separate domestic intrastate Internet transmissions from 
        interstate and foreign Internet transmissions.
            (4) Consumers, businesses, and others engaging in 
        interstate and foreign commerce through online services and the 
        Internet could become subject to new taxes imposed by thousands 
        of separate taxing jurisdictions in the United States alone.
            (5) Inconsistent and inadministerable taxes imposed on the 
        Internet, Internet access, and online services by Federal, 
        State, and local governments would subject consumers, 
        businesses, and other users engaged in interstate and foreign 
        commerce to multiple, confusing, and burdensome taxation, and 
        restrict the growth and continued technological maturation of 
        the Internet itself.
            (6) The Federal Government does not presently, and as a 
        matter of national policy should not in the future, tax the 
        Internet, Internet access, online services, or electronic 
        commerce.
            (7) The twenty-first century marketplace requires a twenty-
        first century sales tax system that is more uniform, 
        consistent, and streamlined. Not only will tax simplification 
        make businesses more competitive, but it will make government 
        more efficient, resulting in personal benefits to every 
        consumer and citizen.
            (8) Because the tax laws and regulations of so many 
        jurisdictions were established long before the advent of the 
        Internet, their application to this new medium in unintended 
        and unpredictable ways could prove to be an unacceptable burden 
        on the interstate and foreign commerce of the Nation.
            (9) The electronic marketplace of services, products, and 
        ideas available through the Internet can be especially 
        beneficial to senior citizens, the physically challenged, 
        citizens in rural areas, and small businesses. It also offers a 
        variety of uses and benefits for educational institutions and 
        charitable organizations.
            (10) A consistent and coherent national policy regarding 
        taxation of electronic commerce conducted over the Internet, 
        and the concomitant uniformity, simplicity, and fairness that 
        is needed to avoid burdening this evolving form of interstate 
        and foreign commerce, can best be achieved by the United States 
        exercising its authority under Article I, section 8, clause 3 
        of the United States Constitution to encourage a cooperative 
        solution among Federal, State, and local levels of government.

SEC. 3. MORATORIUM ON CERTAIN TAXES.

    (a) Extent and Duration of Moratorium.--For a period of three years 
following the enactment of this Act, neither any State nor any 
political subdivision thereof shall impose, assess, collect, or attempt 
to collect any of the following specified taxes:
            (1) Taxes on Internet access.
            (2) Taxes on online services.
            (3) Bit taxes.
            (4) Bandwidth taxes.
            (5) Multiple taxes on electronic commerce.
            (6) Discriminatory taxes on electronic commerce.
    (b) Exception.--The prohibition in subsection (a) shall not apply 
to taxes expressly imposed on Internet access or online services by 
State statute enacted prior to March 1, 1998: Provided, That the rate 
of such tax may not be increased beyond the rate imposed on March 1, 
1998.

SEC. 4. CONSULTATIVE GROUP ON THE INTERNATIONAL TAXATION OF ELECTRONIC 
              COMMERCE.

    (a) Consultative Group.--The Secretaries of the Treasury, State, 
and Commerce, in consultation with appropriate committees of the 
Congress, States and political subdivisions thereof, consumer and 
business groups, and other appropriate groups, shall undertake an 
examination of the international taxation of--
            (1) domestic and international communications and 
        transactions using the Internet;
            (2) goods and services imported to and exported from the 
        United States using the Internet;
            (3) goods and services imported to and exported from the 
        United States by means in competition with the Internet, 
        including mail order sales;
            (4) Internet access; and
            (5) the telecommunications infrastructure used by the 
        Internet, online services, and Internet access.
    (b) President.--Not later than 2 years from the date of enactment 
of this Act, the President shall, to the extent and in the form the 
President deems appropriate, transmit to the appropriate committees of 
Congress policy recommendations on the international taxation of 
communications and transactions using the Internet.

SEC. 5. COMMISSION ON ELECTRONIC COMMERCE.

    (a) Establishment of Commission.--There is established a temporary 
commission to be known as the Commission on Electronic Commerce, 
hereinafter referred to as the ``Commission''. The Commission shall--
            (1) be composed of 29 members, including the Chairman, in 
        accordance with subsection (b); and
            (2) conduct its business in accordance with the provisions 
        of this Act.
    (b) Membership.--
            (1) In general.--The Commissioners shall serve for the life 
        of the Commission. The membership of the Commission shall be as 
        follows:
                    (A) The Secretary of the Treasury and the Secretary 
                of Commerce.
                    (B) Two representatives each from the National 
                Governors' Association, the National Conference of 
                State Legislatures, the Council of State Governments, 
                the National Association of Counties, the National 
                League of Cities, the United States Conference of 
                Mayors, and the International City/County Managers 
                Association.
                    (C) Twelve representatives of consumers and 
                business, of which two each shall be appointed by the 
                President, the Senate majority leader, the Senate 
                minority leader, the Speaker of the House, the House 
                majority leader, and the House minority leader.
            (2) Chairperson.--The Chairperson of the Commission shall 
        be appointed upon the joint recommendation of the Senate 
        majority leader, the Senate minority leader, the Speaker of the 
        House, the House majority leader, and the House minority 
        leader, based on nominations from the National Governors' 
        Association.
            (3) Appointments.--Appointments to the Commission shall be 
        made within 45 days of enactment of this Act.
    (c) Sunset.--The existence of the Commission shall terminate upon 
transmittal of its recommendations to Congress.
    (d) Quorum.--Fifteen members of the Commission shall constitute a 
quorum for conducting the business of the Commission.
    (e) Duties of the Commission.--The Commission shall, in 
consultation with the National Tax Association Communications and 
Electronic Commerce Tax Project and other appropriate groups, undertake 
an examination of--
            (1) a uniform system of definitions of remote commerce 
        subject to sales and use tax within each State;
            (2) a simplified system for sales and use taxes that 
        provides for a single statewide sales or use tax rate on all 
        remote commerce, which rate may be zero, and establishes a 
        method of distributing to political subdivisions within each 
        State their proportionate share of such taxes;
            (3) significant simplifications in the interstate 
        administration of the sales and use tax, including uniform tax 
        registration, tax returns, remittance requirements, and filing 
        procedures;
            (4) an independent third party collection system that would 
        utilize the technology of the Internet to further simplify 
        sales and use tax administration and collection; and
            (5) the level of contacts between a State imposing sales or 
        use tax on remote commerce that should be considered sufficient 
        to subject the remote seller to collection obligations imposed 
        by the State, including the definition of a level of contacts 
        below which a State may not impose on a remote seller the 
        obligation to collect sales or use tax.

SEC. 6. LEGISLATIVE RECOMMENDATIONS.

    (a) Transmission of Proposed Legislation to the President.--Within 
2 years from the date of enactment of this Act, the Commission 
described in section 5 shall transmit to the President proposed 
legislation reflecting its recommendations concerning the matters 
described in section 7.
    (b) Contents of Proposed Legislation.--The proposed legislation 
submitted by the Commission shall--
            (1) define with particularity the level of contacts between 
        a State imposing sales or use tax on remote commerce that will 
        be considered sufficient to subject the remote seller to 
        collection obligations imposed by the State;
            (2) provide that if, and only if, a State has adopted a 
        single sales and use tax rate for remote commerce, and adopted 
        simplified procedures for the administration of its sales and 
        use taxes, including uniform registration, tax returns, 
        remittance requirements, and filing procedures, then such State 
        shall be authorized to impose on remote sellers a duty to 
        collect sales or use tax on remote commerce;
            (3) provide that, effective upon the expiration of 4 years 
        from the date of enactment of the legislation described in this 
        section a State which elects not to adopt a single sales and 
        use tax rate and simplified administrative procedures shall be 
        deemed to have adopted a sales and use tax rate on remote 
        commerce equal to zero;
            (4) include uniform definitions of remote commerce subject 
        to sales and use taxes;
            (5) make permanent the temporary moratorium described in 
        section 3 on Internet access taxes, bit taxes, and bandwidth 
        taxes, and permanently ban such other taxes on electronic 
        commerce as the Commission deems appropriate; and
            (6) be consistent with the statement of policy set forth in 
        paragraphs (1) and (2) of section 230(b) of the Communications 
        Act of 1934, as amended.
    (c) Transmission of Proposed Legislation to the Congress.--Within 
45 days after the transmission to the President of the legislation 
proposed by the Commission, the President shall transmit to the 
Congress a report containing the President's approval or disapproval of 
the legislative recommendations, and his reasons therefor. Upon the 
expiration of 45 days after the transmission to the President of the 
proposed legislation submitted by the Commission, the Commission shall 
transmit such proposed legislation to the Congress.

SEC. 7. EXPEDITED CONSIDERATION OF LEGISLATIVE RECOMMENDATIONS.

    Within 90 legislative days after the transmission to the Congress 
of the proposed legislation described in section 6(c), such legislation 
shall be discharged from the respective committees of jurisdiction 
within the House of Representatives and the Senate, and shall be 
referred to the proper calendar on the floor of each House for final 
action.

SEC. 8. DECLARATION THAT THE INTERNET SHOULD BE FREE OF FOREIGN 
              TARIFFS, TRADE BARRIERS, AND OTHER RESTRICTIONS.

    It is the sense of the Congress that the President should seek 
bilateral and multilateral agreements through the World Trade 
Organization, the Organization for Economic Cooperation and 
Development, the Asia Pacific Economic Cooperation Council, and other 
appropriate international fora to establish that commercial 
transactions using the Internet are free from tariff and taxation.

SEC. 9. DEFINITIONS.

    For the purposes of this Act:
            (1) Internet.--The term ``Internet'' shall have the meaning 
        set forth in section 230(e)(1) of the Communications Act of 
        1934, as amended.
            (2) Internet access.--The term ``Internet access'' means 
        the offering or provision of the storage, computer processing, 
        and delivery of information that enables the user to make use 
        of resources found via the Internet.
            (3) Online service.--The term ``online service'' means the 
        offering or provision of information, information processing, 
        and products or services to a user as part of a package of 
        services that are combined with Internet access and offered to 
        the user for a single price.
            (4) Electronic commerce.--The term ``electronic commerce'' 
        means any transaction comprising the sale, offer, or delivery 
        of goods or services (including Internet access and online 
        services) via the Internet.
            (5) Remote commerce.--The term ``remote commerce'' means 
        the sale and delivery of goods or services by a person in one 
        State to a purchaser in another State.
            (6) Remote seller.--The term ``remote seller'' means a 
        person who sells goods or services from one State to a 
        purchaser in another State.
            (7) Tax.--The term ``tax'' means--
                    (A) any levy, fee, or charge imposed under 
                governmental authority by any governmental entity; and
                    (B) the imposition on the seller of an obligation 
                to collect and remit to a governmental entity any such 
                levy, fee, or charge imposed on the buyer by a 
                governmental entity.
            (8) Bit tax.--The term ``bit tax'' means any transactional 
        tax imposed on or measured by the amount of digital information 
        transmitted electronically, or any transactional tax imposed on 
        or measured according to any of the technological or operating 
        characteristics of the Internet.
            (9) Bandwidth tax.--The term ``bandwidth tax'' means any 
        transactional tax imposed on or measured by the physical 
        capacity of an available signal to transmit digital information 
        electronically.
            (10) Multiple tax.--The term ``multiple tax'' means any tax 
        that is imposed by one State or political subdivision thereof 
        on the same or essentially the same electronic commerce that is 
        also taxed by any other State or political subdivision thereof 
        whether or not at the same rate or on the same basis, and 
        includes any tax that does not ensure that the cost incurred in 
        using telecommunications services to offer, sell, or provide 
        electronic commerce is not subject to taxation under the same 
        tax at a different stage of the process of offering, selling, 
        or providing such electronic commerce.
             (11) Discriminatory tax.--The term ``discriminatory tax'' 
        means any tax imposed by a State or political subdivision 
        thereof on electronic commerce that is not generally imposed 
        and legally collectible at the same rate by that State or 
        political subdivision thereof on similar goods or services not 
        using the Internet, online services, or Internet access, and 
        includes--
                    (A) any tax on electronic commerce that imposes an 
                obligation to collect or pay the tax on a different 
                person or entity than in the case of similar goods or 
                services not using the Internet, online services, or 
                Internet access;
                    (B) any tax imposed or levied by a State or 
                political subdivision thereof, where--
                            (i) the use of a computer server on the 
                        Internet to create or maintain a World Wide Web 
                        page or site by a remote seller is considered 
                        as a factor in determining whether the remote 
                        seller has a substantial nexus; or
                            (ii) an Internet access provider, online 
                        service provider, or World Wide Web hosting 
                        service provider is deemed to be the agent or 
                        representative of a remote seller as a result 
                        of the provider maintaining or taking orders 
                        via a web page or site on a computer that is 
                        physically located within a taxing 
                        jurisdiction;
                Provided, That this definition does not include a tax 
                imposed or levied by a State where a remote seller's 
                interest in physical property such as computer hardware 
                (but not including data) is considered as a factor in 
                determining whether a remote seller has a substantial 
                nexus;
                    (C) any tax purportedly levied by any State or 
                political subdivision thereof on electronic mail 
                services, Internet site selection, electronic 
                newsgroups and bulletin boards, Internet relay chat, 
                Internet search services, and other online services 
                that are either not taxed by such jurisdiction when 
                provided via means other than the Internet or online 
                services, or that by their nature are so related to the 
                Internet or online services that substantially the same 
                service is not offered via means other than the 
                Internet or online services within such State or 
                political subdivision; and
                    (D) any tax that establishes a classification for 
                providers or sellers of electronic commerce or online 
                services for purposes of applying a tax rate higher 
                than the tax rate generally applied to providers of 
                similar goods or information services not using the 
                Internet.

SEC. 10. NO EXPANSION OF TAX AUTHORITY.

    Nothing in this Act shall be construed to expand the duty of any 
person to collect or pay taxes beyond that which existed on March 1, 
1998.
                                 <all>