[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 442 Reported in Senate (RS)]





                                                       Calendar No. 357

105th CONGRESS

  2d Session

                                 S. 442

                          [Report No. 105-184]

_______________________________________________________________________

                                 A BILL

   To establish a national policy against State and local government 
 interference with interstate commerce on the Internet or interactive 
  computer services, and to exercise 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.

_______________________________________________________________________

                              May 5, 1998

        Reported with an amendment in the nature of a substitute





                                                       Calendar No. 357
105th CONGRESS
  2d Session
                                 S. 442

                          [Report No. 105-184]

   To establish a national policy against State and local government 
 interference with interstate commerce on the Internet or interactive 
  computer services, and to exercise 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 SENATE OF THE UNITED STATES

                             March 13, 1997

 Mr. Wyden (for himself, Mr. Kerry, Mr. Burns, Mr. McCain, Mr. Shelby, 
 Mrs. Murray, Mr. Ashcroft, Mr. Faircloth, Mr. Leahy, and Mrs. Boxer) 
introduced the following bill; which was read twice and referred to the 
           Committee on Commerce, Science, and Transportation

                              May 5, 1998

Reported by Mr. McCain, with an amendment in the nature of a substitute

_______________________________________________________________________

                                 A BILL


 
   To establish a national policy against State and local government 
 interference with interstate commerce on the Internet or interactive 
  computer services, and to exercise 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,

<DELETED>SECTION 1. SHORT TITLE.</DELETED>

<DELETED>    This Act may be cited as the ``Internet Tax Freedom 
Act''.</DELETED>

<DELETED>SEC. 2. FINDINGS.</DELETED>

<DELETED>    The Congress finds the following:</DELETED>
        <DELETED>    (1) As a massive global network spanning not only 
        State but international borders, the Internet is inherently a 
        matter of interstate and foreign commerce within the 
        jurisdiction of the United States Congress under Article I, 
        Section 8 of the United States Constitution.</DELETED>
        <DELETED>    (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.</DELETED>
        <DELETED>    (3) Because transmissions over the Internet are 
        made through packet-switching it is impossible to determine 
        with any degree of certainty the precise geographic route or 
        endpoints of specific Internet transmissions and infeasible to 
        separate intrastate from interstate, and domestic from foreign, 
        Internet transmissions.</DELETED>
        <DELETED>    (4) Inconsistent and inadministrable taxes imposed 
        on Internet activity by State and local governments threaten 
        not only to subject consumers, businesses, and other users 
        engaged in interstate and foreign commerce to multiple, 
        confusing, and burdensome taxation, but also to restrict the 
        growth and continued technological maturation of the Internet 
        itself, and to call into question the continued viability of 
        this dynamic medium.</DELETED>
        <DELETED>    (5) Because the tax laws and regulations of so 
        many jurisdictions were established long before the Internet or 
        interactive computer services, their application to this new 
        medium in unintended and unpredictable ways threatens every 
        Internet user, access provider, vendor, and interactive 
        computer service provider.</DELETED>
        <DELETED>    (6) The electronic marketplace of services, 
        products, and ideas available through the Internet or 
        interactive computer services 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.</DELETED>
        <DELETED>    (7) Consumers, businesses, and others engaging in 
        interstate and foreign commerce through the Internet or 
        interactive computer services could become subject to more than 
        30,000 separate taxing jurisdictions in the United States 
        alone.</DELETED>
        <DELETED>    (8) The consistent and coherent national policy 
        regarding taxation of Internet activity, 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.</DELETED>

<DELETED>SEC. 3. MORATORIUM ON IMPOSITION OF TAXES ON INTERNET OR 
              INTERACTIVE COMPUTER SERVICES.</DELETED>

<DELETED>    (a) Moratorium.--Except as otherwise provided in this 
section, no State or political subdivision thereof may impose, assess, 
or attempt to collect a tax directly or indirectly on--</DELETED>
        <DELETED>    (1) the Internet or interactive computer services; 
        or</DELETED>
        <DELETED>    (2) the use of the Internet or interactive 
        computer services.</DELETED>
<DELETED>    (b) Preservation of State and Local Taxing Authority.--
Subsection (a)--</DELETED>
        <DELETED>    (1) does not apply to taxes imposed on or measured 
        by net income derived from the Internet or interactive computer 
        services;</DELETED>
        <DELETED>    (2) does not apply to fairly apportioned business 
        license taxes applied to businesses having a business location 
        in the taxing jurisdiction; and</DELETED>
        <DELETED>    (3) does not affect a State or political 
        subdivision thereof's authority to impose a sales or use tax on 
        sales or other transactions effected by use of the Internet or 
        interactive computer services if--</DELETED>
                <DELETED>    (A) the tax is the same as the tax 
                generally imposed and collected by that State or 
                political subdivision thereof on interstate sales or 
                transactions effected by mail order, telephone, or 
                other remote means within its taxing jurisdiction; 
                and</DELETED>
                <DELETED>    (B) the obligation to collect the tax from 
                sales or other transactions effected by use of the 
                Internet or interactive computer services is imposed on 
                the same person or entity as in the case of sales or 
                transactions effected by mail order, telephone, or 
                other remote means.</DELETED>

<DELETED>SEC. 4. ADMINISTRATION POLICY RECOMMENDATIONS TO 
              CONGRESS.</DELETED>

<DELETED>    (a) Consultative Group.--The Secretaries of the Treasury, 
Commerce, and State, in consultation with appropriate committees of the 
Congress, consumer and business groups, States and political 
subdivisions thereof, and other appropriate groups, shall--</DELETED>
        <DELETED>    (1) undertake an examination of United States and 
        international taxation of the Internet and interactive computer 
        services, as well as commerce conducted thereon; and</DELETED>
        <DELETED>    (2) jointly submit appropriate policy 
        recommendations concerning United States domestic and foreign 
        policies toward taxation of the Internet and interactive 
        computer services, if any, to the President within 18 months 
        after the date of enactment of this Act.</DELETED>
<DELETED>    (b) President.--Not later than 2 years after the date of 
enactment of this Act, the President shall transmit to the appropriate 
committees of Congress policy recommendations on the taxation of sales 
and other transactions effected on the Internet or through interactive 
computer services.</DELETED>
<DELETED>     (c) Recommendations to Be Consistent With 
Telecommunications Act of 1996 Policy Statement.--The Secretaries and 
the President shall take care to ensure that any such policy 
recommendations are fully consistent with the policy set forth in 
paragraphs (1) and (2) of section 230(b) of the Communications Act of 
1934 (47 U.S.C. 230(b)).</DELETED>

<DELETED>SEC. 5. DECLARATION THAT THE INTERNET BE FREE OF FOREIGN 
              TARIFFS, TRADE BARRIERS, AND OTHER 
              RESTRICTIONS.</DELETED>

<DELETED>    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, or other 
appropriate international fora to establish that activity on the 
Internet and interactive computer services is free from tariff and 
taxation.</DELETED>

<DELETED>SEC. 6. DEFINITIONS.</DELETED>

<DELETED>    For purposes of this Act--</DELETED>
        <DELETED>    (1) Internet; interactive computer service.--The 
        terms ``Internet'' and ``interactive computer service'' have 
        the meaning given such terms by paragraphs (1) and (2), 
        respectively, of section 230(e) of the Communications Act of 
        1934 (47 U.S.C. 230(e)).</DELETED>
        <DELETED>    (2) Tax.--The term ``tax'' includes any tax, 
        license, or fee that is imposed by any governmental entity, and 
        includes the imposition on the seller of an obligation to 
        collect and remit a tax imposed on the buyer.</DELETED>

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 service are inherently a 
        matter of 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 individual Internet transmissions will travel 
        over, 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 
        Internet access service could become subject to more than 
        30,000 separate taxing jurisdictions in the United States 
        alone.
            (5) Inconsistent and inadministerable taxes imposed on 
        online services and Internet access service by State and local 
        governments threaten to--
                    (A) subject consumers, businesses, and other users 
                engaged in interstate and foreign commerce to multiple, 
                confusing, and burdensome taxation,
                    (B) restrict the growth and continued technological 
                maturation of the Internet itself, and
                    (C) call into question the continued viability of 
                this dynamic medium.
            (6) Because the tax laws and regulations of so many 
        jurisdictions were established long before the advent of the 
        Internet, online services, and Internet access service, their 
        application to this new medium and services in unintended and 
        unpredictable ways could prove to be an unacceptable burden on 
        the interstate and foreign commerce of the Nation.
            (7) 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.
            (8) A consistent and coherent national policy regarding 
        taxation of online services, Internet access service, and 
        communications and transactions using 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.

SEC. 3. MORATORIUM ON IMPOSITION OF TAXES ON THE INTERNET, ONLINE 
              SERVICES, OR INTERNET ACCESS SERVICE.

    (a) Moratorium.--Except as otherwise provided in this Act, prior to 
January 1, 2004, no State or political subdivision thereof may impose, 
assess, or attempt to collect any tax on--
            (1) communications or transactions using the Internet; and
            (2) online services or Internet access service.
    (b) Preservation of State and Local Taxing Authority.--Subsection 
(a) shall not--
            (1) affect the authority of a State, or a political 
        subdivision thereof, to impose a sales, use, or other 
        transaction tax on online services, Internet access service, or 
        communications or transactions using the Internet if--
                    (A) the tax (including the rate at which it is 
                imposed) is the same as the tax generally imposed and 
                collected by that State or political subdivision 
                thereof in the case of similar sales, use, or 
                transactions not using the Internet, online services, 
                or Internet access service; and
                    (B) the obligation to collect or pay the tax from 
                sales or other transactions using the Internet, online 
                services, or Internet access service is imposed on the 
                same person or entity as in the case of similar sales, 
                use, or transactions not using the Internet, online 
                services, or Internet access service;
            (2) apply to taxes imposed on or measured by gross or net 
        income derived from online services, Internet access service, 
        or communications or transactions using the Internet, or on 
        value added, net worth, or capital stock;
            (3) apply to fairly apportioned business license taxes;
            (4) apply to taxes paid by a provider or user of online 
        services or Internet access service as a consumer of goods and 
        services not otherwise excluded from taxation pursuant to this 
        Act;
            (5) apply to property taxes imposed or assessed on property 
        owned or leased by a provider or user of online services or 
        Internet access service;
            (6) apply to taxes imposed on or collected by a common 
        carrier, as defined in section 3 of the Communications Act of 
        1934 (47 U.S.C. 153), acting in its capacity as a common 
        carrier;
            (7) apply to taxes imposed on or collected by a provider of 
        telecommunications service, as that term is defined in section 
        3 of the Communications Act of 1934 (47 U.S.C. 153); or
            (8) apply to franchise fees imposed by a State or local 
        franchising authority, pursuant to sections 622 or 653 of the 
        Communications Act of 1934 (47 U.S.C. 622 or 573), for the 
        provision of cable services, as those terms are defined by such 
        Act.

SEC. 4. ADMINISTRATION POLICY RECOMMENDATIONS TO CONGRESS.

    (a) Consultative Group.--The Secretaries of the Treasury, Commerce, 
and State, in consultation with appropriate committees of the Congress, 
the National Tax Association-sponsored Joint Communications and 
Electronic Commerce Tax Project and the National Conference of 
Commissioners of Uniform State Laws, consumer and business groups, 
States and political subdivisions thereof, and other appropriate 
groups, shall--
            (1) undertake an examination of United States domestic and 
        international taxation of--
                    (A) communications and transactions using the 
                Internet,
                    (B) online services and Internet access service, 
                and
                    (C) the telecommunications infrastructure used by 
                the Internet, online services, and Internet access 
                service;
            (2) consider any specific proposals made by the Joint 
        Communications and Electronic Commerce Tax Project and the 
        National Conference of Commissioners of Uniform State Laws 
        concerning appropriate parameters for taxation by States, and 
        political subdivisions thereof, of matters described in 
        paragraph (1); and
            (3) jointly submit appropriate policy recommendations 
        concerning United States domestic and foreign policies toward 
        taxation of online services, Internet access service, and 
        communications and transactions using the Internet, if any, to 
        the President within 18 months after the date of enactment of 
        this Act.
    (b) President.--Not later than 2 years after 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 taxation of online services, 
Internet access service, and communications and transactions using the 
Internet.

SEC. 5. 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. 6. DEFINITIONS.

    For the purposes of this Act--
            (1) Internet.--The term ``Internet'' means collectively the 
        myriad of computer and telecommunications facilities, including 
        equipment and operating software, which comprise the 
        interconnected world-wide network of networks that employ the 
        Transmission Control Protocol / Internet Protocol, or any 
        predecessor or successor protocols to such protocol, to 
        communicate information of all kinds by wire or radio.
            (2) Online services.--The term ``online services'' 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 
        service and offered to the user for a single price.
            (3) Internet access service.--The term ``Internet access 
        service'' means the offering or provision of the storage, 
        computer processing, and transmission of information that 
        enables the user to make use of resources found via the 
        Internet.
            (4) Tax.--The term ``tax'' includes any charge imposed by 
        legislative authority to raise revenue for the needs of the 
        public, as well as any license or fee that is imposed by any 
        governmental entity. Such term also includes the imposition on 
        the seller of an obligation to collect and remit to a 
        governmental entity any charge (as defined in the preceding 
        sentence), license, or fee imposed on the buyer by a 
        governmental entity.
                                 <all>