[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
THE WIRELESS TELECOMMUNICATIONS SOURCING AND PRIVACY ACT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS,
TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
on
H.R. 3489
__________
APRIL 6, 2000
__________
Serial No. 106-96
__________
Printed for the use of the Committee on Commerce
U.S. GOVERNMENT PRINTING OFFICE
64-022CC WASHINGTON : 2000
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Telecommunications, Trade, and Consumer Protection
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL G. OXLEY, Ohio, EDWARD J. MARKEY, Massachusetts
Vice Chairman RICK BOUCHER, Virginia
CLIFF STEARNS, Florida BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California ANNA G. ESHOO, California
NATHAN DEAL, Georgia ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming BILL LUTHER, Minnesota
JAMES E. ROGAN, California RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Brooks, Joseph E., Councilman, City of Richmond.............. 5
Bucks, Dan R., Executive Director, Multistate Tax Commission. 11
Scheppach, Raymond C., Executive Director, Office of State
Federal Relations, National Governor's Association......... 9
Wheeler, Thomas E., President and CEO, Cellular
Telecommunications Industry Association.................... 19
(iii)
THE WIRELESS TELECOMMUNICATIONS SOURCING AND PRIVACY ACT
----------
THURSDAY, APRIL 6, 2000
House of Representatives,
Committee on Commerce,
Subcommittee on Telecommunications,
Trade, and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:04 p.m., in
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy''
Tauzin, (chairman) presiding.
Members present: Representatives Tauzin, Oxley, Shimkus,
Pickering, and Markey.
Staff present: Mike O'Rielly, professional staff member;
Cliff Riccio, legislative analyst; and Andy Levin, minority
counsel.
Mr. Tauzin. We'll turn our attention today to the taxation
of another popular communications medium, the wireless
telecommunications medium.
H.R. 3489 introduced by Messrs. Pickering, Markey, Mrs.
Wilson, Mr. Largent and myself, is a strong bill that enjoys
clear, bipartisan support of this committee and makes common
sense for consumers and to State and local taxing
municipalities and cellular providers.
Mobility Wireless Telecomm has always made the
determination of which State and local taxes apply to any
particular wireless call, a very complicated and expensive
task. The problem is that there are many methodologies--
originating cell site, billing addresses, location and others,
which give rise to multiple claims on the tax revenue. Double
taxation and other administration problems obviously arise.
Because these existing methodologies all have their
shortcomings, many States and localities have developed a new
methodology together with the industry, assigning all State and
local telecommunication taxes imposed on consumers to one
location--the consumer's place of primary use. The bill before
us seeks to codify this method as the only method, and as a
result provide a uniform method of fairly and simply
determining how State and local jurisdictions tax wireless
communications.
H.R. 3489 will provide consumers will simpler billing, and
God knows they need that. It preserves State and local
authority to tax wireless services. It reduces the changes for
double taxation from competing jurisdictions, and God knows we
need and would enjoy that. The bill does not, on the other
hand, impose any new taxes, reduce tax obligations for the
wireless industry, or mandate any expenditure of State or local
funding.
The bill is a good bill I urge you to support, and the
Chair would now yield back time and ask if any other members
have opening statements.
I have none. I hear none. I see none. The Chair is very
please now to welcome our witnesses before the committee. Our
witnesses include Tom Wheeler, president and CEO of Cellular
Telecommunications Industry; Dan Bucks, executive director of
Multi-State Tax Commission; Mr. Raymond Scheppach--I hope I
pronounced that right, Raymond.
Mr. Scheppach. Scheppach.
Mr. Tauzin. Scheppach. C'est Francais? Scheppach. Mr.
Raymond Scheppach, executive director of the Office of State
Federal Relations; and Joseph Brooks, the councilman of the
city of Richmond, Virginia, representing the National League of
Cities. I wonder why we picked Richmond for this, but anyway,
Mr. Joseph Brooks.
Mr. Pickering, I understand, has an opening statement, and
he is the author of the bill, and we are pleased to welcome him
and recognize him for an opening statement.
Mr. Pickering. Thank you, Mr. Chairman, and I want to thank
you for having this hearing today on the Wireless
Telecommunications Sourcing and Privacy Act. I would also like
to thank the members of this subcommittee who joined me in
introducing this bill, Mr. Markey, Mrs. Wilson, Mr. Largent,
and our great and good chairman, Mr. Tauzin. In addition, I
would like to thank Mr. Dingell, Mr. Oxley, Mr. Fossella, Mr.
Stearns, and Ms. Cubin for co-sponsoring this bill.
Today, over 80 million Americans are wireless users and
more and more of them are using their wireless telephones as
their sole means of making telephone calls. Just a few years
ago, wireless phones were a novelty item for a privileged few.
Today they are an accessory and for many, a necessity. This
legislation is specifically targeted to address several key
issues that affect wireless telecommunications. At its core,
this bill offers a new framework to simplify how State and
local jurisdictions administer existing taxes on wireless
calls. Under this legislation, all of the customers' State and
local wireless taxes would be assigned to one address--the
customer's place of primary use, which must either be the
customer's home or business address.
The current system relies on several different addresses, a
real nightmare for America's 84 million wireless customers, and
there are some very real, practical problems that can arise in
the administration of the various State and local taxes.
Different jurisdictions may follow different methodologies,
making the determination of the correct taxation very
difficult, depending on this or what particular methodology.
A call could be taxed in the city where the customer is
located, in the town where the wireless antenna is located, or
even in the city where the wireless switch is located. The
bottom line is it is confusing, it's costly, and it's a problem
that we can fix with this legislation. Let me be very clear.
This legislation is about how the wireless industry administers
State and local taxes. It does not reduce or change the
industry's or consumer's tax obligations.
Furthermore, I'd like my colleagues to know that extensive
discussions and negotiations have taken place over the last few
years among several State and local government organizations,
including the National Governor's Association, the National
League of Cities, the Multistate State Tax Commission the
Federation of Tax Administrators and others, along with the
Cellular Telecommunications Industry Association. Together they
have developed a new methodology for dealing with a complex
problem, and that new methodology if embodied in this
legislation. This new method offers certainty and consistency
in the application of tax law and does so in a way that does
not change the ability of State and localities to tax these
revenues.
The second provision of this bill includes the language of
a bill introduced and led through the Congress by my colleague,
Ms. Wilson. Her bill, H.R. 514, improves the privacy
protections afforded to users of wireless communication
devices, and it overwhelmingly passed the house last year.
Finally, the bill requires a GAO study to examine the FCC's
implementation of provisions of current law which require the
telecommunications industry to pay fees to recoup costs of
regulatory functions. There has been concern that these fees
have not and are not being properly assessed. While I have not
taken a position on this matter, I do think it's important to
get a thorough examination of the issue. The GAO study will
provide such a review.
Mr. Chairman, I believe the provisions in this legislation
take us a long way to improving wireless services for
consumers. Simplifying their monthly bills, improving their
privacy, and reducing the possibility of double or even triple
taxation.
In closing I would like to thank the witnesses for
appearing today, for their hard work in negotiating the new
methodology that is included in this bill, and I look forward
to hearing their testimony and working with them for the
passage of this legislation and for the signature into law. I
look forward to today's testimony.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Michael G. Oxley, a Representative in
Congress from the State of Ohio
Thank you, Mr. Chairman.
I look forward to the testimony of our witnesses on the issue of
wireless sourcing.
As a consumer, you really have no idea of the patchwork quilt of
taxes that kick into effect when you make a wireless telephone call.
You also have no certainty about what you're going to have to pay for
that telephone call as a result.
I'm proud to be a cosponsor of H.R. 3489, and I think this
Committee has an interest and a responsibility to do what it can to
simplify in this area. With new technologies coming into the
marketplace, it makes sense to look at this issue now.
I want to commend the gentleman from Mississippi, Mr. Pickering,
for his leadership in introducing H.R. 3489.
I yield back the balance of my time.
______
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress
from the State of Florida
Mr. Chairman, thank you for holding this hearing on H.R. 3489, the
Wireless Telecommunications Sourcing and Privacy Act, and examining how
state and locality transactional taxes affect wireless providers and
consumers. I am proud to be a cosponsor of this legislation and
congratulate industry, and state and local governments for their hard
work in simplifying the manner in which telecommunications providers
are taxed. The legislation offered by Congressman Pickering will create
a nationwide, uniform system, greatly simplifying the taxation and
billing of wireless calls, all the while reducing costs and
frustrations for consumers.
The wireless industry is growing at an astounding rate, being one
of the most competitive industries, consumers can realize the benefits
of competition through dropping rates and improving wireless coverage
and technologies. A year ago, there were 60 million wireless
subscribers in America. In less than one year, that number has jumped
to more than 87 million U.S. wireless subscribers, with further
estimates indicating that within the next several years, there will be
over 200 million wireless users in the U.S. alone.
Mr. Chairman, I, too, am one those connected to the world through
my wireless phone, whether it be in Washington or the 6th District of
Florida. When in Florida, I usually fly into the airport in Orlando and
drive over a 100 miles to Ocala. During my drive, I pass through
numerous county and city taxing jurisdictions. In the two hours it
takes me to drive between Orlando and Ocala, I usually place several
wireless calls. Under the current scheme, I may be taxed for calls
based on the cell site my calls are originating from, I may be taxed if
my calls originate at a switch in one of those jurisdictions, or I may
be taxed based on my roaming, or my billing address. And often at
times, I may be taxed more than once for the same phone call. Not only
is the current system of taxing wireless calls incredibly complex for
carriers, but it is also costly for consumers, often times resulting in
headaches.
H.R. 3489 before us today, reduces the costs of administrating
taxes for carriers and governments, while providing consumers with
simplified billing. This bill assigns a consumer's primary residence or
business as the taxing jurisdiction for the purposes of taxing roaming
and other charges that are subject to state and local taxation.
The legislation we have before us brings order and common sense to
the manner in which wireless telecommunications services are taxed. It
benefits consumers, industry, and government. I urge my colleagues to
support and ensure passage of this legislation.
Thank you.
______
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress
from the State of Wyoming
Thank you, Mr. Chairman, for scheduling this important legislative
hearing on a bill that I am a proud cosponsor of, H.R. 3489, the
Wireless Telecommunications Sourcing and Privacy Act.
I commend Congressman Pickering for putting forth this very
important piece of legislation and am pleased to see that a section of
the bill includes Congresswoman Wilson's privacy language which I
supported in the form of H.R. 514.
Very quickly I want to express my support for clarifying and
simplifying the complex web of taxes that apply to wireless phone
calls.
Confusion over these taxes--that quite literally transcend human
comprehension--make life for both wireless providers and their
customers miserable.
The wireless industry as well as local government groups deserve a
considerable amount of praise for their efforts in coming to the
compromise we see in front of us today.
Again, Mr. Chairman, thank you for bringing this legislation before
the subcommittee in such an expedient manner.
I yield back the balance of my time.
______
Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
Thank you, Mr. Chairman.
I want to thank my good friend from Mississippi, Mr. Pickering, for
his leadership on this issue. He has done fine work to bring this issue
to our attention. He also has been a leader on wireless issues in
general and I look forward to any additional work he does in this area.
This bill contains a number of provisions affecting wireless
services, but let me focus on the heart of the legislation. Section 3
of the bill sets forth a compromise on taxation of certain wireless
services.
Through hard work and tough negotiations, the differing parties--
including those that will testify today--were able to reach agreement
on how best to tax consumers' use of wireless services.
The current problem this bill will solve is monumental. Today, the
various taxing jurisdictions have enacted a myriad of differing
approaches to taxing wireless services. These differing systems often
overlap and contradict each other. This can lead to double taxes.
Under the current law, the wireless carriers are forced to
determine for each wireless call which tax-man should get a piece of
the pie. Think of the paperwork and hours wasted on such a task.
The compromise contained in section 3 is an attempt to bring some
common sense to the issue. And the benefits should be staggering--for
all parties involved. Most importantly, consumers will benefit from a
law to simplify their bills and prevent extra taxes.
I must admit, however, that this debate is a tad off the mark. The
real question should be--Is it sound policy to put a consumption tax on
wireless calls? These types of consumer taxes increase consumer cost
and therefore have an effect on how much wireless systems are used.
This bill will codify a system that allows for states and
localities to impose a disincentive to use one of the most innovative
and convenient technologies today. The wireless industry has accepted
this fate and in effect, tied consumers to this result as well.
I would hope that if we had to do it all over again and as we look
at this type issue in another context, we would discuss whether this
type of taxation is necessary at all, rather than how to simplify it.
With that said, I will support the approach in the bill because it
leans in the right direction.
Mr. Tauzin. Thank the gentleman, and the Chair is now
please to welcome our witnesses. Mr. Brooks, you're not related
to the former Chairman Brooks of the judiciary committee, are
you?
Mr. Brooks. No, I am not. I resemble him. I hope you
thought highly of him, too. He's a good friend.
Mr. Tauzin. Guys, you know the drill. Your written
statements by unanimous consent and made a part of the record
as well as all the written statements of all the members of the
subcommittee. Mr. Wheeler, you've been here many times before.
We'll begin with you, if you would in 5 minutes summarize the
important testimony you brought to us today. Mr. Wheeler?
STATEMENTS OF THOMAS E. WHEELER, PRESIDENT AND CEO, CELLULAR
TELECOMMUNICATIONS INDUSTRY ASSOCIATION; JOSEPH E. BROOKS,
COUNCILMAN, CITY OF RICHMOND; RAYMOND C. SCHEPPACH, EXECUTIVE
DIRECTOR, OFFICE OF STATE FEDERAL RELATIONS, NATIONAL
GOVERNOR'S ASSOCIATION; AND DAN R. BUCKS, EXECUTIVE DIRECTOR,
MULTISTATE TAX COMMISSION
Mr. Wheeler. Mr. Chairman, we're kind of the fourth wheel
on this wagon, and with all due respect, perhaps Councilman
Brooks can start the ball rolling here.
Mr. Tauzin. Not a problem. We'll go to you, Mr. Brooks, and
I appreciate your summary of your testimony, sir.
STATEMENT OF JOSEPH E. BROOKS
Mr. Brooks. Mr. Chairman, thank you very much. It's always
nice to follow another Virginian, I guess I could say. I
attended the meeting this morning.
Mr. Chairman and members of the subcommittee the National
League of Cities is pleased to have this opportunity to share
our views on the Wireless Telecommunication and Privacy Act. As
you've already stated, I am Joe Brooks. I'm a member of the
City Council of the city of Richmond. I also currently serve on
the board of directors of the National League of Cities.
The National League of Cities represents approximately
135,000 mayors and local elected officials from cities, towns,
and villages across America. They range in population from our
Nation's largest cities of Los Angeles, New York, to its
smallest towns. We are the nation's oldest association
representing municipal interest in Washington. At this time, as
you have indicated, the written testimony is a part of the
record.
On behalf of the National League of Cities, I would like to
express my gratitude to Representative Pickering for
introducing the Wireless Telecommunications Sourcing and
Privacy Act. His leadership on this issue clearly shows his
confidence in State and local government's ability to resolve
complex telecommunication issues without Federal preemption of
traditional municipal authority. The mobility afforded to
millions of American consumers by mobile telecommunication
services has helped transform the American economy, facilitate
the development of the information superhighway, and provides
important public safety benefit.
As we enter the 21st century, however, the
telecommunication industry and State and local governments have
been wrestling over numerous taxation issues. This measure is
positive proof that we can afford solutions that address the
critical needs of cities and foster the growth of
telecommunication industries. This cooperative effort is how we
believe other issues involving telecommunication industry can
be resolved. This stands in sharp contrast to the procedures of
the ACEC that we heard this morning.
NLC welcomes the opportunity to develop a partnership with
you, Mr. Chairman, and members of the subcommittee to address
the Wireless Telecommunications Sourcing and Privacy Act and
other Federal efforts relating to meaningful telecommunications
tax simplification that respects local governments, fiscal
needs and autonomy.
In my testimony today, I want to voice the National League
of Cities' strong support for the Wireless Telecommunication
Sourcing and Privacy Act. This legislation is the accumulation
of a 3-year cooperative effort between the wireless industry,
and National League of Cities, the National Governor's
Association, the Federation of Tax Administrators and the
Multistate Tax Commission. Working with industry and our State
partners, we have developed a measure that we believe provides
a straightforward solution to a very complicated problem. From
the National League of Cities perspective, this legislation
benefits consumers, State and local governments, and the
wireless industry.
The application of local taxes on wireless services
presents unique and difficult problems, both for local
governments and for wireless service providers. There's been
considerable debate among industry and State and local
governments as to which jurisdiction should have the right to
tax wireless calls. Is it the town, county, or State from which
the call originated? Is it where the call terminated or where
some element of the wireless provider's transmission facility
is located?
The Act answers this question and others like it in a way
that upholds and adheres to traditional notions of State and
local sovereignty with respect to taxation. The measure does
not change the ability of States and localities to tax the
telecommunications services. It is generally revenue neutral
among the local governments, equitable among carriers and
taxing jurisdictions and considerably easier to administer.
For the local government, the measure addresses several
important issues--nexus, collection, and remittance of existing
taxes due, and of course, simplification and uniformity. The
measure bolsters the ability of State and local governments to
collect those taxes they choose to impose on wireless providers
while simplifying wireless provider's job of determining which
taxes apply to them. The measure removes any doubt as to a
local taxing jurisdiction's ability to impose an existing tax
on cellular services by expressly recognizing the authority of
the taxing jurisdictions indicated by the customer's place of
primary use. It prevents the exercise of additional authority
by any other local taxing jurisdictions.
The measure does not mandate any expenditure of State or
local funding. In addition to preserving State and local
government revenues, the Wireless Telecommunication Sourcing
and Privacy Act lowers the cost of collecting taxes that are
owed. I cannot stress enough that the current system is an
accounting nightmare and a drain on local governments. Overall,
the existing system is administrative burdens for governments
and costly for consumers.
State and local taxes that are not consistently based can
result in some telecommunication revenues inadvertently
escaping local taxation altogether, thereby depriving local
governments of needed tax revenues to pay for vital functions
they provide, such as police, fire, emergency service. The
Wireless Telecommunications Sourcing and Privacy Act would
relieve local taxing authorities of burdensome orders and
oversight responsibilities without losing the authority to tax
wireless calls. The measure puts local governments and service
providers on a level playing field by sparing them the arduous
task and expense of determining the taxability of every
individual cellular call included in the bill, including calls
that cross taxing jurisdictions multiple times during the same
call. The measure establishes a uniform standard for sourcing
cellular telecommunications for all State and local governments
that tax these activities.
The measure's new method of sourcing wireless revenue for
local tax purpose is needed to avoid the potential, as the
chairman indicated, of double or no taxation. To provide
carriers, taxing jurisdictions, consumers with an environment
of certainty and consistency in the application of tax law. The
measure's public and private partnership shows that the State
and local governments in the wireless industry can work
together to produce beneficial results for all stakeholders.
The local government's uniformity that respects local
autonomy is important because it simplifies the compliance for
our cities. The measure provides much needed relieve for State
and local governments that are impinging upon the essential
responsibility of local taxing authority.
Mr. Chairman and members of the subcommittee, I greatly
appreciate your leadership on this issue and look forward to
working with you as this crucial piece of legislation moves
forward to a final passage. I'll be happy to answer any
questions that the subcommittee may have at the appropriate
time.
[The prepared statement of Joseph E. Brooks follows:]
Prepared Statement of Joseph E. Brooks, Council Member, Richmond,
Virginia on Behalf of The National League of Cities
Mr. Chairman and Members of the Subcommittee, the National League
of Cities (NLC) is pleased to have this opportunity to share our views
on the Wireless Telecommunications Sourcing and Privacy Act. My name is
Joseph E. Brooks and I am a City Council Member from Richmond,
Virginia. I also currently serve on the National League of Cities'
Board of Directors.
The National League of Cities represents 135,000 mayors and local
elected officials from cities and towns across the country that range
in population from our nation's largest cities of Los Angeles and New
York to its smallest towns. NLC is the nation's oldest national
association representing municipal interests in Washington. At this
time, I ask that my written testimony be submitted for the record.
On behalf of the National League of Cities I would like to express
my gratitude to Representative Pickering for introducing the Wireless
Telecommunications Sourcing and Privacy Act (H.R. 3489). His leadership
on this issue clearly shows his confidence in state and local
governments' ability to resolve complex telecommunications issues
without federal preemption of traditional municipal authority.
The mobility afforded to millions of American consumers by mobile
telecommunications services has helped transform the American economy,
facilitate the development of the information superhighway and provides
important public safety benefits. As we enter the 21st Century,
however, the telecommunications industry and state and local
governments have been wrestling over numerous taxation issues. This
measure is positive proof that we can forge solutions that address the
critical needs of cities and foster the growth of the
telecommunications industry. NLC welcomes the opportunity to develop a
partnership with you, Mr. Chairman, and the members of the
Subcommittee, to address the Wireless Telecommunications Sourcing and
Privacy Act and other federal efforts relating to meaningful
telecommunications tax simplification that respects local governments'
fiscal needs and autonomy.
In my testimony today, I want voice the National League of Cities'
strong support for the Wireless Telecommunications Sourcing and Privacy
Act. This legislation is the culmination of a three-year cooperative
effort between the wireless industry, the National League of Cities,
the National Governors' Association, the Federation of Tax
Administrators, and the Multi-State Tax Commission. Working with
industry and our state partners, we have developed a measure that, we
believe, provides a straightforward solution to a very complicated
problem. From the National League of Cities' perspective, this
legislation benefits consumers, state and local governments and the
wireless industry.
The application of local taxes on wireless services presents unique
and difficult problems both for local governments and for wireless
service providers. There has been considerable debate among industry
and state and local governments as to which jurisdictions should have
the right to tax wireless calls. Is it the town, county or state from
which the call originated? Is it where the call terminated or where
some element of the wireless provider's transmission facility is
located?
The Wireless Telecommunications Sourcing and Privacy Act answers
this question and others like it in a way that upholds and adheres to
traditional notions of state and local sovereignty with respect to
taxation. The measure does not change the ability of states and
localities to tax telecommunications services. It is generally revenue-
neutral among local governments, equitable among carriers and taxing
jurisdictions, and considerably easier to administer. For local
government, the measure addresses several important issues--nexus,
collection and remittance of existing taxes due, and of course,
simplification and uniformity.
The measure bolsters the ability of state and local governments to
collect those taxes they choose to impose on wireless providers while
simplifying wireless providers' job of determining which taxes apply to
them. The measure removes any doubt as to a local taxing jurisdiction's
ability to impose an existing tax on cellular services by expressly
recognizing the authority of the taxing jurisdictions indicated by the
customer's place of primary use, and preventing the exercise of
additional authority by any other local taxing jurisdictions. The
measure does not mandate any expenditure of state or local funding.
In addition to preserving state and local government revenues, the
Wireless Telecommunications Sourcing and Privacy Act lowers the cost of
collecting taxes that are owed. I cannot stress enough, that the
current system is an accounting nightmare and a drain on local
governments. Overall, the existing system is administratively
burdensome for local governments and costly for consumers. State and
local taxes that are not consistently based can result in some
telecommunications revenues inadvertently escaping local taxation
altogether, thereby depriving local governments of needed tax revenues
to pay for the vital functions they provide such as police and fire,
and emergency services. The Wireless Telecommunications Sourcing and
Privacy Act would relieve local taxing authorities of burdensome audits
and oversight responsibilities without losing the authority to tax
wireless calls. The measure puts local governments and service
providers on a level playing field by sparing them the arduous task and
expense of determining the taxability of every individual cellular call
included in a bill, including calls that crossed taxing jurisdictions
multiple times during the same call. The measure establishes a uniform
standard for sourcing cellular telecommunications for all state and
local governments that tax these activities.
The measure's new method of sourcing wireless revenues for local
tax purposes is needed to avoid the potential for double or no
taxation; and to provide carriers, taxing jurisdictions and consumers
with an environment of certainty and consistency in the application of
tax law. For local governments, uniformity that respects local autonomy
is important, because it simplifies compliance for our cities and
avoids multiple taxation. This measure provides much needed relief for
state and local governments without impinging upon the essential
responsibility of local taxing authority.
The measure's public-private partnership shows that the state and
local governments and the wireless industry can work together to
produce beneficial results for all stakeholders.
Mr. Chairman and Members of the Subcommittee, I greatly appreciate
your leadership on this issue and look forward to working with you as
this crucial piece of legislation moves forward toward final passage. I
would be happy to answer any questions that the Subcommittee may have
at the appropriate time.
Mr. Tauzin. Thank you, Mr. Brooks. Who wants to go next?
Mr. Scheppach is next.
STATEMENT OF RAYMOND C. SCHEPPACH
Mr. Scheppach. Thank you, Mr. Chairman. I appreciate your
inviting me here to testify on behalf of the nation's
Governors. I'll submit the full statement, and I'll really only
take a minute or 2 to summarize it very, very quickly.
First let me say that the NGA is in full support of H.R.
3489, the Wireless Telecommunication Sourcing and Privacy Act.
Second, I'd like to say I very much appreciate the willingness
of this industry to sit down and negotiate out this bill. We
really look at it as a potential model because we're all going
to be dealing with some further major economic changes in the
future, and we hope that rather than preemption by the Federal
Government, that we're allowed to work out our problems with
the industry.
In terms of the provisions on this bill, it's fairly
straightforward. No. 1, it simplifies the billing system. It
simplifies it for consumers, for government and for business,
and therefore it should lead to some fairly significant cost
reductions.
Second of all, it's revenue neutral. It does not have any
Federal mandate with respect to State spending, and most of all
it protects State sovereignty. There is no preemption of State
authority. So, those provisions are very good. They're
straightforward. We support the bill, and we would urge you to
move quickly to mark up and go to the Floor, and I'd be happy
to answer any questions.
[The prepared statement of Raymond C. Scheppach follows:]
Prepared Statement of Raymond C. Scheppach, Executive Director, Office
of State Federal Regulations, The National Governors' Association
Chairman Tauzin and other members of the committee, thank you for
inviting me to testify on H.R. 3489, the Wireless Telecommunications
Sourcing and Privacy Act. I am Ray Scheppach, executive director of the
National Governors' Association, and I am testifying today on behalf of
the association.
First let me thank you and Mr. Pickering and the other cosponsors
for your leadership and sponsorship of the Wireless Telecommunications
Sourcing and Privacy Act. The National Governors' Association is very
excited about this legislation, particularly about the process that led
to its creation and introduction at the end of last year. The wireless
industry approached NGA and other state and local organizations
slightly more than two years ago to bring an issue to our attention.
The issue was state and local taxation of wireless phone services.
The wireless industry had originally approached Congress to solve their
problems, but since the issue was by its very nature a state and local
issue, you asked them to come to us first to see if we could work out a
mutually acceptable solution. And that is exactly what we have done
during the past two years. The solution that we reached is reflected in
the legislation that we are discussing today.
We are hopeful that this approach can serve as a model for similar
issues in the future. By working collaboratively, government and
industry can develop solutions that end up working better for everybody
than solutions that are developed unilaterally. This applies not just
to collaboration between one level of government--such as state
government--and industry, but also to collaboration between the
different levels of federal, state, and local government. Part of what
makes this legislation so exciting from our perspective is this unique
cooperative approach between all affected parties.
You are going to hear about a lot of the details of this
legislation from the other witnesses today, so I would like to address
the legislation from a slightly broader perspective. Many state and
local telecommunications taxes and tax systems were created before the
advent of wireless phones. The result of this is that we have tax
systems in place that really are not appropriate for mobile
telecommunications and consequently create a lot of administrative
headaches and even financial liability for the companies in this
industry. Fundamentally, we have a 20th century tax system that applies
to a 21st century industry.
Let me just give you a few examples of what I mean. Some state and
local tax jurisdictions require phone companies to tax
telecommunications services where they occur. This is easy to do when I
pick up a landline phone in my office or my home and make a call. It
becomes a little more complicated when I pick up my cell phone and make
a call.
Should the service be taxed by the jurisdiction where I am
physically located at the time I am making the call? How does the phone
company figure out where I am? What if I am driving between my home in
Virginia and my office in the District of Columbia? What if the
cellular tower that is transmitting the call happens to be located in a
different tax jurisdiction than the one in which I am physically
standing?
As you can clearly see, the issue becomes very complicated very
quickly. And this list of questions applies only to one scenario of how
a state or local tax jurisdiction requires the tax to be applied. The
list may grow exponentially when you consider that different
jurisdictions have different rules for determining how calls should be
taxed. Some places tax telecommunications services based on where the
call physically takes place, other places apply taxes based on a
customer's billing address, and others still determine taxes using the
originating cell site, tower, or switch. It is simply unreasonable and
incredibly burdensome to expect the phone companies to be able to
figure out all these variables and then collect and remit taxes on
behalf of all the appropriate jurisdictions.
These issues alone are sufficient to require a solution, but the
problems go further than just figuring out the location of a call for
tax purposes. The marketplace for cellular telecommunications services
is evolving in ways that the existing tax system is not designed for
and cannot accommodate. Just as the task of figuring out exactly where
a call takes place for tax purposes has become increasingly complex in
the wireless era, so has the task of figuring out exactly how much a
call costs. Wireless services are often sold in buckets or bundles of
minutes, so it is very difficult for the phone companies to assign a
specific cost to each phone call or each minute of service for that
matter. When you add this complicating wrinkle to the already difficult
chore of figuring out which combination of state and local
jurisdictions have the authority to tax a call, it becomes readily
apparent why it is so important to overhaul the state and local tax
system for wireless telecommunications services.
I touched on this point earlier, but I would like to emphasize
again how remarkable and significant it is that different levels of
government have worked so successfully with industry to reach a
mutually acceptable solution. Rather than seeking to avoid existing tax
collection responsibilities, industry approached state and local
governments to help them develop a uniform and sensible approach to
fulfilling these responsibilities on behalf of state and local
governments. The Wireless Telecommunications Sourcing and Privacy Act
does not seek to expand or reduce any company's tax collection
responsibilities, nor does it seek to determine or change whether a
state or local jurisdiction does or does not tax wireless services or
at what rate they choose to do so.
The act creates a uniform method for determining where wireless
services are deemed to occur for purposes of taxation. In those states
where wireless services are taxed today, they will continue to be taxed
under this bill. For those states that have chosen not to tax wireless
services, they will continue not to be taxed. Furthermore, state and
local governments will retain the authority that they have today to
make future changes as their governors and legislatures decide
regarding the taxability of these services and what rates apply to
them.
The bottom line is that this mobile telecommunications sourcing
legislation does what it needs to do in the way that it needs to be
done. It establishes uniformity across state and local jurisdictions in
the way that they determine which jurisdictions have the authority to
tax a particular call. This provides the simplicity and consistency
that industry needs. But the Wireless Telecommunications Sourcing and
Privacy Act also preserves the ability of state and local governments
to make fundamental decisions about how to raise the revenues they need
to provide essential public services ranging from educating children to
building roads to providing police and fire safety. We appreciate the
hard work of industry to address these issues in a fair and mutually
beneficial manner and think that these efforts and the interests of
industry, state and local governments, and consumers are well reflected
in the Wireless Telecommunications Sourcing and Privacy Act.
Thank you again for inviting me to testify today on behalf of the
National Governors' Association. We look forward to continue working
with you, your colleagues in the Senate, and the other groups
represented here today to achieve passage of this important
legislation. I would welcome any questions you might have.
Mr. Tauzin. Thank you very much, sir. The buck stops here,
Mr. Bucks.
STATEMENT OF DAN R. BUCKS
Mr. Bucks. Okay, thank you. Mr. Chairman, members of the
committee, it's a pleasure to be here. We thank you for this
opportunity to both comment and to submit written testimony
which we've done, so I'm Dan Bucks. I'm the executive director
of the Multistate Tax Commission, which is an organization of
State governments that works with taxpayers to administer
equitably and efficiently tax laws that apply to multistate and
multinational enterprises. We're pleased here to join in strong
support of H.R. 3849.
As the other speakers have noted, we join as well in the
applause for the efforts of cooperation between industry and
State and local governments that put this legislation together,
and it really is, we hope, a model for a broader dialog in
other areas as well.
Now, one might ask, and I've had to ask myself why is the
Multistate Tax Commission that's an organization of State
governments so committed to working for the passage of Federal
legislation governing an issue that's normally a matter of
State sovereignty. The answer here is I think simple. We share
the views of several Members of Congress that it is essential
that the Constitutional authority of State and local
governments to decide on the tax policies affecting their
citizens to be protected and not preempted by the Federal
Government.
In this case, what we don't have here is we don't have the
kind of preemption that creates winners or losers among States
or localities or among different categories of taxpayers. We
don't have that. What we have instead is an opportunity for the
Federal Government to work with the States and localities using
their power to regulate interstate commerce and to resolve
issues of federalism in a way that is of mutual benefit to
State and local governments and the industry to achieve an
efficient and equitable result, and that's why this is one of
the reasons why this is a good piece of legislation.
I want to comment on three of the principles that are
embodied here in the legislation, as some others have noted as
well. The bill protects State sovereignty. States retain the
right to determine whether or not they wish to tax
telecommunications services, including mobile
telecommunications, and this legislation neither mandates nor
prohibits such taxes. It just makes a more efficient system
possible.
With regard to uniformity, as others have already noted,
there's a uniform rule here for the siting of phone calls that
is the core of the principles in this legislation, and that's
what makes this thing work.
The other component that has not been commented on is the
use of technology, and this is another innovative feature of
the legislation. The legislation breaks new ground in terms of
harnessing modern technology to help solve a tax issue that was
created by modern technology, and this technology in this case
involves the States providing a data base of certified tax
rates for specific address localities upon which the industry
can rely for the calculation of the tax.
Now, I might comment that the use of technology in this
particular case is of particular benefit to the consumers and
industries operating in Louisiana because of the robust system
of local sales taxation in Louisiana, Mr. Chairman, and this
data base will be particularly helpful in the context of your
State.
Mr. Tauzin. There's a lot of robustness in Louisiana.
Mr. Bucks. We concur. With regard to--and one other
provision that's very important is the non-severability clause
in this legislation. It's absolutely critical. Without that
clause, the legislation could create an incentive for
litigation that would unfortunately convert this legislation
from being of mutual benefit to all the parties that you see
here to something that would, in fact, preempt State taxing
authority and undermine State sovereignty.
Now, I want to mention two technical points in section
three of the legislation that have been brought to our
attention that we would like to correct by amendment when the
legislation is brought up for consideration. There will be
first a technical amendment that will conform the Federal
legislation to a unique circumstance in one State's
constitution to allow telecommunications companies operating
within that State that are currently subject to the State's
business and occupational tax to calculate this business tax
base according to separate provisions. It's really required by
that State's constitution.
Second, there will be an amendment to exempt one State's
single business tax from inclusion under this legislation.
These changes are technical in nature. They do not affect
States other than those that they address, and they do not
impact the intent of the legislation.
Again, we've enjoyed the opportunity to work with the
industry with the other organizations here at the table to
bring about what we think is an efficient and equitable
solution to an otherwise vexing problem in terms of the
operation of these taxes in the modern economy. Thank you.
[The prepared statement of Dan R. Bucks follows:]
Prepared Statement of Dan R. Bucks, Executive Director, Multistate Tax
Commission
I. The Multistate Tax Commission. The Multistate Tax Commission is
an organization of state governments that works with taxpayers to
administer, equitably and efficiently, tax laws that apply to
multistate and multinational enterprises. Created by an interstate
compact, the Commission:
encourages tax practices that reduce administrative costs for
taxpayers and States alike;
develops and recommends uniform laws and regulations that
promote proper state taxation of multistate and multinational
enterprises;
encourages proper business compliance with state tax laws
through education, negotiation and compliance activities; and
protects state fiscal authority in Congress and the courts.
Forty-four States (including the District of Columbia) participate
in various programs of the Commission.
Mobile telecommunications have transformed our way of life. In the
present day, it is common, sometimes preferred, to conduct business or
converse with friends and family on a wireless telephone while moving
about the city, the state, the country, or the world. This new mobility
presents challenges for consumers, telecommunications service
providers, and, in particular, local, state, and federal governments
that must regulate both the service and use of mobile
telecommunications.
HR 3489, the Wireless Telecommunications Sourcing and Privacy Act
is the product of several years of earnest negotiations between the
states and telecommunications providers to resolve the difficult issue
of providing a uniform rule for determining the location of mobile
telecommunications services and assigning a taxing jurisdiction to
those services. This effort is unique. Rarely, have states and industry
collaborated in this manner. The result of this effort has produced a
dramatic simplification in telecommunications taxes that protects
consumers, streamlines tax reporting mechanisms for telecommunications
providers, and prevents potential double tax assessments by states upon
consumers. Most importantly for states and localities, HR 3489
preserves their sovereignty and taxing authority over state and local
telecommunications tax structures.
The Multistate Tax Commission is pleased to offer its support for
HR 3489. A copy of the Commission's resolution supporting this
legislation is attached to this statement.
II. The Proposal. In practical and general terms, HR 3489, the
Wireless Telecommunications Sourcing and Privacy Act (the ``Act'')
provides a uniform rule for determining the location of the sale and
purchase of mobile telecommunications (wireless) services when that
determination is necessary for the proper application of a state or
local tax. The uniform rule of the proposal is that only the taxing
jurisdiction or jurisdictions may impose the telecommunications taxes
covered by the proposal 1 whose territorial limits encompass
the wireless customer's place of primary use. This defined location in
practical effect establishes where the sale and purchase subject to the
state or local tax is occurring. The uniform rule also necessarily
identifies the taxing jurisdictions that may impose a tax collection
and/or payment obligation and the wireless providers to which the
obligation pertains.
---------------------------------------------------------------------------
\1\ There may be more than a single jurisdiction, because in some
States telecommunications taxes coming within the terms of the proposal
are imposed by local jurisdictions.
---------------------------------------------------------------------------
III. Reasons for the Proposal. States and localities impose
transactional taxes, like sales and use taxes, on the provision of
mobile telecommunications services. A transactional tax for these
purposes is a tax that necessarily requires a determination of where
the services are sold and purchased in order to apply the taxes
applicable to that location. It can be difficult to determine the
precise location of the sale and purchase of wireless services.
Consequently, it can also be difficult to determine the precise taxes
that are applicable to the provision of wireless services.
Difficulty in determining the precise location can arise from the
mobile character of the services. Thus, for example, a wireless call
can come from and go to any location and the location can even change
during the course of the call. Further, wireless companies offer
billing plans that significantly reduce at the retail level the
business need to identify the precise location of the retail sale and
purchase. One example of this trend is a nationwide subscription plan
that permits wireless calling without roaming charges or long-distance
charges from any location, provided a certain specified number of
minutes of use per month is not exceeded.
It can also be difficult to determine all the taxes that are
applicable to the precise location where a wireless call is sold and
purchased. This difficulty can arise from having to match correctly
each identified location to the boundaries of the various local taxing
jurisdictions in a State that permits local taxation of wireless
telecommunications.Given these and other practical difficulties, the
wireless industry sought development of taxing systems that lessened
the burden of having to determine the location of the sale and purchase
of each wireless call and the taxes applicable to each call. This
effort captured the attention of state and local tax administrators who
desire to have existing tax systems better match current business
practices and reality. Representatives of the wireless industry and
state and local tax administrators jointly developed the proposed
Wireless Telecommunications Sourcing and Privacy Act (July 21, 1999,
version) (the ``Act'').
IV. Conceptual Structure of Proposal. (1) Taxes Subject to Act--
This remedial legislation is applicable only to a limited set of state
and local taxes for which the demands of sourcing require amelioration.
The taxes that come within the scope of the Act are those for which it
is necessary to determine the location of the sale and purchase of
mobile telecommunications services in order to apply the tax.
(2) Sourcing--The Act eliminates the need to determine the precise
location of the sale and purchase of mobile telecommunications services
where charges are billed by or for the wireless provider with which the
customer contracts for services. In place of locating the sale and
purchase, the Act provides that wireless calls will be located for tax
purposes in the jurisdiction(s) of the customer's place of primary use.
Place of primary use for these purposes means either the customer's
residence or primary business location that is within the licensed
service area of the wireless provider with which the customer contracts
for wireless services. Limiting a place of primary use to one of these
two choices minimizes the opportunity for tax planning that could occur
through the selection of a taxing situs solely for its tax climate.
In implementing this sourcing rule, the Act contains both a
congressional authorization and prohibition. First, the Act authorizes
States and localities to apply their taxes to wireless
telecommunications on the basis of the place of primary use concept
regardless of the origination, termination, or passage of the
telecommunications being taxed. Second, the Act prohibits any other
State and locality from taxing the telecommunications.
(3) Identification of Tax Jurisdiction(s)--Additionally, the Act
provides that a State can elect, from time to time, to make a database
available to wireless providers that would match a specific street
address to the applicable taxing jurisdiction(s). This match would then
permit wireless providers to determine the applicable taxes of the
jurisdiction(s). If the wireless provider uses a database provided by a
State, the State may not assess the provider for taxes not paid as a
result of errors or omissions in the database. Alternatively, if a
State elects not to provide the database, the provider may use an
enhanced zip code (zip + 4 or a zip of more than nine digits) matching
system to determine the applicable taxing jurisdiction(s). A provider
may not be assessed for taxes not paid under the enhanced zip system as
long as the provider uses due diligence in completing the match.
(4) Nonseverability Clause--The Act provides that if subsequent
litigation determines that the Act violates federal law or the
Constitution or that federal law or the Constitution substantially
impairs the Act, the entire Act falls. This nonseverability is a
critical feature of the Act, because the States are giving up an
existing state tax system with one set of jurisdictional understandings
in favor of a different taxing system with a different jurisdictional
understanding. Without that clause, the legislation could create an
incentive for litigation that would, unfortunately, seek to convert
this legislation from being of mutual benefit to states, localities and
the industry to legislation that would, in fact, preempt state taxing
authority and undermine state sovereignty. If the new system is lost,
the States want an unrestricted ability to return to the status quo
ante.
V. Proposed Annual Review of Regulatory Fees. The Act contains
provisions relating to a proposed annual review by the U.S. Comptroller
General regarding annual regulatory fees collected by the Federal
Communications Commission. The Commission takes no position on this
provision.
VI. Provisions Regarding Commerce in Electronic Eavesdropping
Devices. The Act contains provisions relating to the tampering of
electronic communication devices and penalties that may be assessed for
the unauthorized publication of electronic communications. The
Commission takes no position on these provisions.
VII. Outline of Provisions. The provisions of the Act are as
follows--
a. The findings of Sec. 2 describe the problem of applying state and
local transactional taxes to wireless telecommunications and the
competing value of preserving viable state and local governments in
our federal system. The findings also acknowledge the need for a
practical solution in the area of state and local taxation of
mobile telecommunications services.
B. Sec. 3 directs classification of the provisions of the Act to a
position in title 47, United States Code. Thus, title 47 is amended
by adding new Sec. 801 thru 812 with provisions as follows:
1. Sec. 801(a) describes the taxes subject to the sourcing rules of
the Act. By definition of inclusion and exclusion the affected
taxes are limited to transactional taxes where it is necessary
to identify the location of the sale and purchase of the mobile
telecommunications services.
2. Sec. 801(b) excludes the applicability of the Act to certain
specified taxes. The exclusion means that the Act applies to
taxes whose application is dependent upon locating the place of
sale and purchase of wireless telecommunications. Taxes
excluded from the Act include, among others, income taxes and
taxes on an equitably apportioned gross or net amount that is
not determined on a transactional basis.
3. Sec. 801(c)(1) provides that the place of primary use sourcing
rule of the Act does not apply to prepaid telephone calling
services. See Sec. 3(m)(8) that defines these services.
4. Sec. 801(c)(2) clarifies the application of the provision in the
Act that resellers are not customers when the Internet Tax
Freedom Act (Title XI of Pub. L. 105-277) precludes taxability
of either a sale or resale of mobile telecommunications
services. If the Internet Tax Freedom Act prohibits taxation of
either the sale or resale, a State is not restricted under the
Act from taxing the sale (in case of a restriction against
taxation of the resale) or the resale (in the case of a
restriction against taxation of the sale) wireless
telecommunications services.
5. Sec. 801(c)(3) provides that the place of primary use sourcing
rule of the Act does not apply to air-ground radiotelephone
service as defined in 47 C.F.R. Sec. 22.99 as of June 1, 1999.
6. Sec. 802 establishes the rule of taxation that wireless
telecommunications are taxable by jurisdiction(s) in which the
place of primary use is located. The rule only applies to
charges for wireless services for which charges are billed by
or for the wireless provider with which the customer contracts.
See Sec. 809(5).
7. Sec. 802(b) authorizes States and localities to impose taxes based
upon the place of primary use and prohibits them from imposing
taxes on a different basis.
8. Sec. 803 limits the effect of the Act to its express terms.
9. Sec. 804 allows a State or a designated database provider to make
a database available in a uniform format. The database will
match street addresses (in standard postal format) within the
State to the applicable taxing jurisdictions. A wireless
provider using the database is generally protected against
assessment for errors or omissions in the database.
10. Sec. 805(a) authorizes a wireless provider to use a system that
matches enhanced zip codes (zip + 4 or zip codes of more than
nine digits) to the applicable taxing jurisdictions, when a
State elects not to provide the database described in Sec. 804.
Specified conventions apply to the use of the enhanced zip
system. A wireless provider is protected against assessment for
an erroneous matching of a street address to the applicable
taxing jurisdiction(s) where the provider can show it exercised
due diligence.
11. Sec. 805(b) continues the qualified protection against assessment
for wireless providers that are using the enhanced zip system
for a defined transitional period following the taxing State's
provision of a database that meets the requirements of Sec.
804.
12. Sec. 806(a) provides that a taxing jurisdiction under specified
procedures can require (through an audit-like action after
meeting certain standards) a wireless provider to change
prospectively the customer's place of primary use or require
the wireless provider to change prospectively the applicable
taxing jurisdiction(s). The affected customer or the wireless
provider is afforded the opportunity of administrative review,
if desired.
13. Sec. 807(a) notes that initial designation of the place of
primary use is principally the responsibility of the customer.
A customer's designation is subject to possible audit. See Sec.
806(a) discussed above. Sec. 806(a)(2) states that, with
respect to taxes customarily itemized and passed through on the
customer's bills, the wireless provider is not generally
responsible for taxes subsequently determined to have been
sourced in error. However, these rules are subject to the
wireless provider's obligation of good faith.
14. Sec. 806(b) provides that in the case of a contract existing
prior to the effective date of the Act a wireless provider may
rely on its previous determination of the applicable taxing
jurisdiction(s) for the remainder of the contract, excluding
extensions or renewals of the contract.
15. Sec. 808(a) contemplates that a taxing jurisdiction may proceed,
if authorized by its law, to collect unpaid taxes from a
customer not supplying a place of primary use that meets the
requirements of the Act.
16. Sec. 808(b) states that a wireless provider must treat charges
that reflect a bundled product, only part of which is taxable,
as fully taxable, unless reasonable identification of the non-
taxable charges is possible from the wireless provider's
business records kept in the regular course of business.
17. Sec. 808(c) limits non-taxability of wireless telecommunications
in a jurisdiction where wireless services are not taxable. A
customer must treat charges as taxable unless the wireless
provider separately states the non-taxable charges or provides
verifiable data from its business records kept in the regular
course of business that reasonably identifies the non-taxable
charges.
18. Section 809 defines the terms of art of the Act:
a. Sec. 809(1) defines ``charges for mobile telecommunications
services''.
b. Sec. 809(2) defines ``taxing jurisdiction.''
c. Sec. 809(3) defines ``place of primary use'' as the customer's
business or residential street address in the licensed
service area of the wireless provider. Place of primary use
is used to determine the taxing jurisdiction(s) that may
tax the provision of mobile telecommunications services. If
a wireless provider has a national or regional service
area, like a satellite provider, the place of primary use
is still limited to the customer's business or residential
street address within that larger service area.
d. Sec. 809(4) defines ``licensed service area.''
e. Sec. 809(5) defines ``home service provider.''
f. Sec. 809(6) defines ``customer.'' Under a special rule,
customers include employees (the end users) of businesses
that contract for mobile telecommunications services.
Customers do not include (i) resellers, except resellers
where the Internet Tax Freedom Act would prohibit taxation
of wireless services sold by a reseller (see item Q,
above); and (ii) a serving carrier providing wireless
services for a customer who is outside the customer's
contractual provider's licensed service area.
g. Sec. 809(8) defines ``prepaid telephone calling services.''
h. Sec. 809(9) defines ``reseller.'' A reseller does not include a
serving carrier providing wireless services for a customer
who is outside the customer's contractual provider's
licensed service area.
i. Sec. 809(10) defines ``serving carrier.''
j. Sec. 809(7) defines ``designated database provider.''
k. Sec. 809(11) defines ``mobile telecommunications services'' as
commercial mobile radio service as defined in 47 C.F.R.
Sec. 20.3 as of June 1, 1999. This definition includes
wireless services that are furnished by a satellite
provider.
l. Sec. 809(12) defines ``enhanced zip code,'' a term that refers
to zip +4 or a zip code exceeding nine digits.
19. Sec. 810 negates FCC jurisdiction over the Act, thereby avoiding
the anomalous circumstance of a non-elected federal regulatory
body having administrative responsibility over a provision
going to the core of state sovereignty in our federal system of
government.
20. Sec. 811 expressly provides for nonseverability in the event of a
judicial determination that the Act is unconstitutional or
otherwise substantially impaired from accomplishing its
objective.
21. Sec. 812 establishes an effective date of the first month
following two years after enactment. The transitional delay
allows both business and tax administrators to gear up for a
change in their existing systems, including the possible use of
the database authorized by Sec.804. Further, Sec. 812 provides
that nothing in the Act affects the intent or implementation of
either the Internet Tax Freedom Act or Telecommunications Act
of 1996.
V. Sec. 4 directs the U.S. Comptroller General to review the annual
regulatory fees collected by the FCC to determine whether such fees
have been accurately assessed since their inception, and report its
review to Congress.
W. Sec. 5 amends the Communications Act of 1934 to prohibit modifying
any electronic communication device, equipment, or system in a
manner that causes it to fail to comply with regulations governing
electronic eavesdropping devices.
X. Sec. 6 applies penalties for the unauthorized publication or use of
electronic communications to the unauthorized recipient,
intentional interception, or intentional divulgence of any such
communication. The section also directs the FCC to investigate
alleged violations and proceed to initiate action to impose
forfeiture penalties.
VIII. Legal Issues. (1) Constitutionality--In Goldberg v. Sweet,
488 U.S. 252, 263 (1989), the U.S. Supreme Court explained what States
had jurisdiction to apply a transactional tax to interstate
telecommunications. Jurisdiction rested with the State or States from
which the telecommunications originated or in which the
telecommunications terminated, provided that that State also was the
State of the service address (address of the equipment to which the
telecommunications was charged) or the billing address. The Supreme
Court has not generally denied the possibility of jurisdiction in other
States, except that the Court has specifically noted a State through
which the telecommunications passes or in which the telecommunications
terminates lacks sufficient contacts to tax the telecommunications. See
488 U.S. at 263.
The place of primary use rule provided in the Act does not follow
the prescription of Goldberg v. Sweet. Some may question therefore
whether a State (or a local jurisdiction of a State) of the place of
primary use has sufficient basis for asserting jurisdiction to impose a
transactional tax in all instances contemplated by the Act. This
alleged deficiency is best illustrated by the taxation of a mobile
telecommunications event occurring in two States, neither of which is
the State of the place of primary use, e.g., a subscriber of mobile
telecommunications services in the State of A, travels to State B and
places a wireless call to a location in State C. Under the Act, State A
would be the only State with authority to tax this call.
The justification for permitting State A to tax the illustrated
call is that State A is the State in which the contractual relationship
is established that in effect sponsors the customer to make the State B
to State C call. Clearly State A has a significant contact with the
provision of mobile telecommunications services, no matter where the
call is made. State A's contact is especially compelling support of
jurisdiction, if the call is made pursuant to the provider's wireless
plan that allows the subscriber to make the call that involves other
States utilizing the provider's own system, but in separate licensed
service areas. Similarly, State A would have strong contact where the
provider's billing plan is a flat rate plan that generally ignores the
location from which calls are made as long as certain time limits are
not exceeded. In this latter case, the provider could be characterized
as selling wireless access and not selling specific mobile
telecommunications events.
But even without these kinds of strong contacts, as where the call
originating in State B and terminating in State C incurs roaming and/or
long-distance charges; State A's connection to the call is nevertheless
substantial. It is the subscriber's existing contractual relationship
to the State A provider that allows the subscriber to enter the
wireless system to make, and incur charges related to, the State B to
State C call. That kind of connection seems more than sufficient to
support State A's jurisdiction to tax the call, even though it does not
meet the origination/termination and service/billing address rule of
Goldberg v. Sweet.
Yet this faith in the jurisdiction of State A is unproven. And one
must face the prospect that a constitutional challenge may be mounted
under the Due Process Clause and the Commerce Clause against allowing
State A to tax the call. One would suppose a challenge under the
Commerce Clause would be easily rebuffed, since Congress can consent to
state taxation that would otherwise violate the Commerce Clause.
Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 434 (1946). The harder
question is whether Congress can consent to state taxation that would
otherwise violate the Due Process Clause. Thus, to the extent the
Goldberg v. Sweet rule is grounded in the jurisprudence of the Due
Process Clause, something a close reading of the Supreme Court cases
does not clearly disclose, this other question must be answered. The
States and local governments and congressional legislators will want to
weigh, before enactment of the Wireless Telecommunications Sourcing and
Privacy Act, the strength of the alternative argument that a
congressionally authorized plan of taxation overcomes Due Process
Clause objections in certain circumstances.
Scholars have addressed the question about congressional power to
override Due Process Clause restrictions on state power. William Cohen,
Congressional Power to Validate Unconstitutional State Laws: A
Forgotten Solution to an Old Enigma, 35 Stan. L. Rev. 387 (1983);
William Cohen, Congressional Power to Interpret Due Process and Equal
Protection, 27 Stan. L. Rev. 603 (1975); Walter Hellerstein, State
Taxation of Electronic Commerce, 52 Tax L. Rev. 425 (1997). The
consensus seems to be that Congress' power to consent to state
violations otherwise occurring under the Due Process Clause does not
extend to violations of individual rights but does extend to violations
arising out of our federal form of government. Any other conclusion
would place our federal form of government at the mercy of requiring a
constitutional amendment to cure issues of federalism that could
otherwise be solved by congressional adoption of practical solutions to
intractable problems. Institutionally speaking, this kind of outcome
from the U.S. Supreme Court is a rare result reserved for only the most
fundamental of issues arising under our Constitution. State and local
taxation of wireless telecommunications under a congressionally-
sanctioned, practical convention sought by the industry to solve an
intractable problem and developed cooperatively with governmental
assistance hardly falls into that category.
To prevent the legislation from creating an incentive for
litigation, the Act contains a nonseverability provision. Act Sec.
3(b). This provision ensures that if the congressionally-sanctioned,
practical convention fails so will the newly established restrictions
that have been placed against state taxing power by the Act. Act Sec.
3(a)(2) (last clause). States that conform their law to the new taxing
convention of the Act may also provide for a back-up tax that is based
upon the assumption of the old taxing system remaining non-operational
as long as the new convention remains valid and in effect. A back-up
tax of this type will discourage adventuresome litigation to see what
might be gained by attacking the constitutionality of the new system.
(2) Open Mobile Telecommunications Systems--The solution developed
under the Act presupposes a wireless telecommunications infrastructure
that operates based upon a contractual relationship between the
subscriber and the home service provider that has a license service
area for the location of the subscriber's business or residence. While
it is never possible to predict where a form of commerce may eventually
go, there are indications that wireless communications may eventually
become open. An open infrastructure would mean that all one needed for
connecting into the wireless channels of telecommunications would be a
handset. Billing for use of the wireless channels of telecommunications
in an open system would be triggered by actual use based upon
information transmitted at the time of the placement of the call.
If an open system eventually develops for the most part, and there
is no assurance that it will, the utility of the solution offered by
the Act becomes limited. The Act to some extent acknowledges the
impracticality of the solution of the Act in an open system by
excluding the prepaid calling card system. But the Act's definition of
the term prepaid calling services is restrictive enough not to exclude
an open system from the operation of the Act. Nevertheless, it would
seem an open system by practical necessity is excluded from the
operation of the Act. The contractual relationship that is described in
the Act's concept of a home service provider would seem to be missing.
In addition, on-site billings that are presupposed by an open system
would seem to lessen the need for the practical place of primary use
solution of the Act. Finally, the coincidence of a residence or an
office with the licensed service area of the connecting provider in an
open system would seem to be in most instances a rare occurrence. But
if an open system is excluded from the operation of the Act, it remains
an unanswered question whether it is appropriate for the Act to
anticipate an open system in wireless telecommunications and to provide
a solution for this possible development also.
(3) Freezing definitions in time--Some key concepts of the Act are
frozen in time by legal understandings that exist as of a date certain,
June 1, 1999. These concepts are air-ground radiotelephone service and
commercial mobile radio service. Freezing central concepts in time has
the potential to permit the legislation to lose its practicality. Yet
it is also difficult to propose a solution that would work regardless
of whither the concepts develop over time. There is no easy answer to
the dilemma posed and perhaps the approach of the Act is best. After
all, if the Act loses its vitality due to evolutionary or even
revolutionary change, both industry and state and local tax
administrators are equally faced with the challenge of bringing their
respective systems into a synchronous relationship.
Mr. Tauzin. Thank you, Mr. Bucks, and finally, Mr. Wheeler.
STATEMENT OF THOMAS E. WHEELER
Mr. Wheeler. Thank you, Mr. Chairman. I'm here to echo the
other witnesses, which is what I essentially said at the outset
here, and to thank them all for 3 years of good faith hard work
coming to this result. Also to thank Mr. Pickering, you, Mr.
Chairman, Mr. Oxley, Mr. Markey and other members of the
committee who have moved to seize upon that to hopefully make
it the kind of Presidential activity that the previous
witnesses had just talked about.
Let me reiterate one thing, though, and that is that there
is nothing in this legislation that changes any jurisdiction's
taxation powers. What it does is to establish a common sense
plan for those taxing powers to be administered in a mobile
society. Our tax structure is a sedentary structure. It grew up
in a non-mobile society, if you will. In the telephone at home,
you know where it is. You know where to tax it, but the
airwaves don't respect political boundaries, and likewise,
consumers take their phones across political boundaries.
Governments have tried the best they can to deal with this new
reality, but as you have already indicated, they end up doing
it in a hodgepodge of different ways. Determining that the call
originates from the originating cell or the originating switch
or the billing address or the telephone number, there is no
continuity in this.
Let me show you an example over here on this chart as to
just what this means. Consider a call from town A, which is
that orange area, that is picked up by a cell in town B and is
switched, it's carried to a switch where it's switched in town
C. Now, who collects if those three measures are traditionally
what's being used today?
Let me show you another example. We've all driven up 95
past Baltimore to Philadelphia. 104 Miles from Baltimore to
Philadelphia, you go through 12 State and local jurisdictions.
You're making calls continuously along the way. How do the
localities sort out who gets the taxes from the call? How do
the carriers sort it out, and to your point, Mr. Chairman,
imagine the consumer's confusion on the bottom line when the
numbers on the State and local taxes line this month are
different than they were last month simply because of the fact
that the travel pattern was different.
Let me show you another example of how the common sense
solution solves this problems. Consider a peripatetic business
woman who lives in Kansas City, and she gets on the plane early
in the morning, and she flies to Denver, has a meeting, flies
to Seattle, has another meeting, turns around and flies back.
It's not a great quality of life, but it's a typical kind of
experience. Three cities, 39 calls, 26 jurisdictions. Now, look
at the burden to the governments involved, to the carriers to
sort it out, and to the consumer, who doesn't understand all
these different taxes that finally end up on her bill.
Now, if you enact this piece of legislation, here's what
the experience will be. The same peripatetic life, the same
three cities, the same 39 calls, but one place of primary use
for taxation. That will simplify things for the governments.
That will simplify things for the industry, and that will
clearly make things simpler for the consumer. The airwaves
simply can't be trained to respect political borders, and
Americans are a mobile society. We have a couple of choices. We
either develop complex procedures that run up the cost of
government to the taxpayers, or run up the cost of business to
consumers, or we enact the common sense solution for the mobile
age that eliminates headaches and saves the consumer a bundle
twice.
One final aspect of this, Mr. Chairman. The determination
of the taxing authority in which the place of primary use
resides, there are two solutions in this bill. One is State and
local governments may develop a data base using zip codes, and
the other is absent that, the companies may do that. There is a
2-year transition period where we can continue the kind of good
faith work that brought us to this point.
Finally, quick reference to the two other issues in the
bill. The privacy legislation, this committee has been a
champion of this, and this house has been a champion of this.
Twice by over 400 yea votes, the House has passed this piece of
legislation. We hope that, once again, you will step forward
and close down the loopholes that allow electronic stalking.
Last, the GAO report on the FCC's calculation of fees. This
is something that is moving across the board. The technique is
constantly changing. It is well worth the Congress taking a
look.
Mr. Chairman, as I sat here and I listened to these
individuals and I saw Mr. Shimkus sitting down here, it dawned
on me that this committee with this piece of legislation has an
opportunity to twice in this Congress deal with how do you make
sure that the laws of the land keep up with changes in
technology. Mr. Shimkus' leadership and this committee's
leadership made the E911 bill law, and we certainly hope that
as a result of the common effort here by all of the parties and
your continued leadership that this could be the second example
of how we keep pace with the technological changes. Thank you,
Mr. Chairman.
[The prepared statement of Thomas E. Wheeler follows:]
Prepared Statement of Tom Wheeler, President and CEO, Cellular
Telecommunications Industry Association
Mr. Chairman and Members of the Subcommittee: Thank you for the
opportunity to appear before you today to present the wireless
industry's views on legislation that would create a uniform method of
sourcing wireless revenues for state and local tax purposes. I am Tom
Wheeler, President and CEO of the Cellular Telecommunications Industry
Association (CTIA), representing all categories of commercial wireless
telecommunications carriers, including cellular and personal
communications services (PCS).1
---------------------------------------------------------------------------
\1\ CTIA is the international organization which represents all
elements of the Commercial Mobile Radio Service (CMRS) industry,
including cellular, personal communications services, wireless data.
CTIA has over 750 total members including domestic and international
carriers, resellers, and manufacturers of wireless telecommunications
equipment. CTIA's members provide services in all 734 cellular markets
in the United States and personal communications services in all 50
major trading areas, which together cover 95% of the U.S. population.
---------------------------------------------------------------------------
The wireless industry is founded on innovation, competition and
safety. With the key support of members of this Committee, these
principles have unleashed a telecommunications revolution in the past
decade. More than 80 million Americans were wireless subscribers in
1999, an astounding leap from just 4 million in 1990. Wireless
competition has accelerated to the point that 238 million Americans can
today choose from among 3 or more wireless providers. And, more than
165 million Americans live in areas where they can chose from among
five or more wireless providers. Throughout this growth, prices for
wireless service have fallen dramatically because of increased
competition--the average per minute rate has dropped by roughly 50
percent since 1990 in markets throughout America. Indeed, these
enhanced services, available to millions of Americans, testify to the
power and correctness of the policy judgements made by the members of
this Committee in the Omnibus Budget Reconciliation Act of 1993 and the
1996 Telecommunications Act. But, with this revolutionary growth of
wireless telecommunications, it is not surprising that from time to
time it becomes apparent that laws or regulations that worked for more
traditional telecommunications services simply do not translate well to
wireless communications.
I am here today to discuss with this Committee the work on one such
area--the assignment of wireless services to their proper taxing
jurisdiction. My testimony will also address the other important items
included in H.R.3489--the Wireless Telecommunications Sourcing &
Privacy Act. I would note with appreciation that this legislation has
been introduced and co-sponsored by many members of this Subcommittee,
including: Mr. Pickering, Chairman Tauzin, Subcommittee Ranking Member
Markey, Mrs. Wilson, Mr. Largent, Committee Ranking Member Dingell,
Mrs. Cubin, Mr. Oxley, and Mr. Fossella, Mr. Stearns, as well as Mr.
Sununu.
uniform sourcing provisions--description of the problem
It is the mobile nature of wireless telecommunications that makes
the assignment of wireless services and revenues for tax purposes so
complicated. Chart 1 illustrates some of the practical problems. If I
make a phone call from my back yard, located in Town A, and that call
is picked up at the closest cell site, in Town B, and routed to the
nearest switch in Town C--where should the call be taxed? States and
localities have adopted a variety of methodologies to answer that
question, including: siting the taxes to the location of the
originating cell site, the originating switch, or the billing address
of the customer, which may or may not be a home address. All of these
methodologies are legitimate and were adopted in good faith by state
and local officials, but all have their shortfalls. For example, both
the originating cell site and the originating switch in my illustration
are outside the taxing jurisdiction from which I am making the call. To
complicate matters further, Towns A, B, and C may all be using
different methodologies, and that could result in multiple claims on
the same revenue for taxation. These are just some of the issues that
the tax departments of wireless carriers must deal with daily at the
local level.
Chart 2 offers some real-life illustrations of what the current
system means to consumers. Suppose a businessman is driving from
Baltimore, MD, to Philadelphia, PA, making phone calls throughout the
two-hour drive. During the course of this trip, the consumer will have
passed through 12 state and local tax jurisdictions, each with their
own telecommunications tax rates and rules. Even if there were not
competing methodologies complicating the picture, the administrative
difficulty for the wireless carrier of correctly determining tax rates
and rules for 12 different jurisdictions, passed through in just a few
hours, is tremendous. Likewise, the administrative difficulties for the
12 taxing jurisdictions in monitoring compliance with their laws are
severe.
The administrative burdens of the current system are even more
striking when viewed at the national level (Chart 3). Let's use as an
example, a businesswoman living in Kansas. In one day of business
travel, she makes 3 wireless calls on the drive to the airport; flies
to Denver where she makes 16 calls during her cab rides from the
airport to her meeting and back; then flies on to Seattle where she
picks up a car to drive to Tacoma. In the roundtrip between the Seattle
Airport and the Tacoma meeting site, our businesswoman makes another 19
wireless calls, before catching the dinner flight back to Kansas City.
The poor woman makes her final call of the day on the drive home from
the airport to tell her family she'll be there soon. During this one
harried business day, 39 wireless calls have been made, which requires
her wireless carrier to keep track of the tax rates and rules in 26
different state and local taxing jurisdictions.
But as difficult as all this is for industry to complete and for
state and local governments to monitor--think what the consumer faces.
From month to month, depending on where the consumer travels, the
consumer's state and local tax bill will change. This rightly leaves
customers scratching their heads. If enacted, this uniform sourcing
legislation will go a long way towards solving this problem for
consumers.
Let me also add that all these problems face even greater
challenges in the near future, challenges posed by home calling areas
that are growing and the latest ways consumers are buying wireless
service. Larger home service areas may encompass more and more state
and local taxing jurisdictions. And the new ``bucket of minutes''
billing plans fundamentally complicate proper tax determination--
particularly of roaming--as the allocation of minutes to calls and
revenues becomes unclear. In short, Mr. Chairman, the current system
doesn't work for consumers, industry or state and local governments--
and these problems will only get worse in the months and years ahead.
uniform sourcing provisions of h.r. 3489, the wireless
telecommunications sourcing & privacy act
A new method of sourcing wireless revenues for state and local tax
purposes is needed to provide carriers, taxing jurisdictions and
consumers with an environment of certainty and consistency in the
application of tax law; and to do so in a way which does not change the
ability of states and localities to tax these revenues. After more than
three years of discussions, CTIA and representatives from the National
Governors' Association, the National League of Cities, the Federation
of Tax Administrators, the Multistate Tax Commission, the National
Conference of State Legislatures, and other state and local leaders
have worked to develop a nationwide, uniform method of sourcing and
taxing wireless revenues.
Under the leadership of Mr. Pickering, Chairman Tauzin, Mr. Markey
and other members of this Subcommittee, we were able to come together
to forge this proposal. Many of you are co-sponsors of the
legislation--H.R. 3489--that implements the ideas we have worked so
long to craft. With the leadership and assistance of Chairman Bliley,
Telecommunications Subcommittee Chairman Tauzin, Subcommittee Ranking
Member Markey and Committee Ranking Member Dingell and all members of
this Subcommittee, it is our hope that this legislation will soon
become the law.
It is important to stress that this legislation does not change the
ability of states and localities to tax wireless revenues--it leaves
the determination of the tax rate and base to the state and local
taxing authorities. In other words, this proposal does not address,
change or affect whether a jurisdiction may tax, it only prescribes how
it may tax.
which taxes are covered by uniform sourcing provisions?
It is important to distinguish which taxes would be sourced to a
``place of primary use.'' To state it most simply, uniform sourcing
applies only to ``transaction taxes''--or those paid by the consumer,
typically itemized on a customer's bill, and collected by wireless
companies. The Wireless Telecommunications Sourcing & Privacy Act has
no impact on federal taxes or fees, such as the Federal Excise Tax or
the Federal Universal Service Fee. These federal taxes and fees are not
included in the scope of this legislation because they apply throughout
the nation--unlike state and local taxes which apply only in their
particular geographic area.
I would emphasize that this legislation addresses the taxes paid by
the consumer. Our industry is acting as the administrator of these
taxes, imposed on consumers by literally thousands of state and local
jurisdictions. So, I would again like to compliment the state and local
officials who have worked so hard to develop this proposal to simplify
the administrative duties of our industry. I believe the legislation
will also make it easier for the state and local officials who monitor
our industry to make sure we do the job right. But, great credit is due
these state and local officials for working so closely with us on this
important issue.
how the uniform sourcing legislation works
Place of Primary Use (PPU)
There are two major components to the uniform sourcing
legislation--the ``place of primary use'' and state by state databases
identifying state and local taxing jurisdictions. Let me start with
``the place of primary use.'' This legislation defines that for the
purposes of state and local taxation, the consumer's purchase of
taxable wireless telecommunications services, including charges while
roaming anywhere in the United States, have taken place from a single
address--a ``place of primary use.'' Then, only the taxing
jurisdictions in which that address is located may tax the charges. I
would note that there is often more than one taxing jurisdiction for
any particular address, given the multiple layers of state and local
governance (such as, the school district, city, county, and state.) The
``place of primary use'' is defined as the street address most
representative of where the customer's use of mobile telecommunications
services primarily occurs. It must be either the residential street
address or the primary business street address of the customer. That
address also must be within the licensed service area of their home
service provider. Customers will be asked to provide their ``place of
primary use'' when they sign up for service or renew their contracts.
For the convenience of the consumer, after the effective date of
the legislation (two years after passage to allow for necessary changes
in state laws and regulations) the legislation allows carriers to treat
the address they have been using for tax purposes as the ``place of
primary use'' for the remaining term of any existing service contract.
After that, when the service contract is extended, renewed, or changed,
the customer provides their ``place of primary use.''
Customers may also change their ``place of primary use''
designation if they find that their use of the wireless phone changes.
And, similar to any other tax situation in which the party being taxed
(in this case, the consumer) specifies an address for tax purposes--
should there be any dispute over whether the customer has designated
the appropriate address as the ``place of primary use,'' the
legislation provides state and local governments the authority to
review its accuracy, and change it if necessary.
To illustrate how the ``place of primary use'' works let's go back
to our harried businesswoman from Kansas City. Because this was her
business wireless phone, the street address of her company is her
``place of primary use.'' Under this legislation, the 39 wireless calls
she made in one day of business travel, would, for tax purposes, be
deemed to have all taken place from her Kansas City address. So, only
the three taxing jurisdictions--city, county and state--in which her
business address is located would have the authority to tax the 39
calls.
State by State Databases of Taxing Jurisdictions
Today, even after wireless carriers have identified which address
is going to be used for tax purposes, it is often difficult to
determine the appropriate taxing jurisdictions for that address.
Annexations of unincorporated areas and shifting local boundaries are a
frequent cause of this difficulty. And, as a result, the second major
piece of this legislation is the provision of state-level databases
which assign each address within that state to the appropriate taxing
jurisdictions. So, that all carriers can use the database, and so the
same code does not refer to more than one taxing jurisdiction, the
legislation provides for a nationwide standard numeric format for
codes. The format must be approved by the Federation of Tax
Administrators and the Multistate Tax Commission, organizations
representing the state and local officials who administer taxes.
A state or the local jurisdictions within the state may, but are
not required to, develop these electronic databases. If a carrier
utilizes the state database, and if there is an error due to a mistake
in the database (e.g., the database indicated our businesswoman's
address was in Overland Park, Kansas, when, in fact, the address is in
Kansas City, Kansas), the database is corrected and the carrier
utilizes the corrected database. What this legislation avoids is the
costly and difficult process of going back, figuring out the amount of
taxes paid to the wrong jurisdiction, then figuring out where they
should have been paid. Instead, this legislation applies some practical
common sense.
Only if a state chooses not to provide a database, a carrier may
develop a database that assigns taxing jurisdictions based on a zip
code of nine or more digits. The carrier is required to exercise due
diligence in creating this database. The legislation specifies that the
carrier must expend a reasonable amount of resources to create and
maintain the database, use all reasonably attainable data, and apply
internal controls to promptly correct mis-assignments. If such
standards are met, the same processes that apply if a state-created
database contains an error, apply to the carrier-created database.
I emphasize that state and local governments maintain authority
over both the ``place of primary use'' and the database. Any taxing
jurisdiction may request the carrier to make prospective changes to a
customer's ``place of primary use'' if it feels the one provided by the
customer doesn't meet the required definition. The affected taxing
jurisdictions simply get together, determine the correct place of
primary use, then notify the carrier. Likewise, if taxing jurisdictions
determine that an address has been mis-assigned to the wrong taxing
jurisdiction, the taxing jurisdictions simply notify carriers of the
error, and it is our responsibility to make the correction.
For this proposal to work, it will ultimately require the
implementation of the uniform sourcing rules by all states, in order to
eliminate the problems that would result if only some states
``uniformly sourced'' the wireless calls made by their residents in
other states. It is for this reason--the need for a standard and
nationwide approach--that government groups and industry began to look
for a solution to the problems of taxing wireless calls. Only federal
legislation can accomplish this, but because this legislation
recognizes that individual state and local tax laws and regulations
might need to be changed to conform to the federal law, the effective
date of this legislation is not until two years after enactment.
uniform sourcing provisions--summary & concluding points
In conclusion, the uniform sourcing provisions of H.R. 3489 would
not impose any new taxes or change state or local authority to tax
wireless telecommunications; nor would it mandate any expenditure of
state or local funding or in any way reduce the tax obligations of the
wireless industry. Instead, it would ensure that wireless
telecommunications services are taxed in a fair and efficient manner,
one that benefits all concerned--consumers, state and local
governments, and industry.
wireless privacy enhancement provisions of h.r. 3489
I would also like to express my strong support for two other
important elements of H.R. 3489. One such element is the incorporation
of the text of H.R. 514, the Wireless Privacy Enhancement Act,
legislation lead by Congresswoman Wilson which passed the full House,
most recently by a vote of 403-3 on February 25th, 1999. (I would note
as an aside, that this legislation was introduced in the other body
last week.) This component of the legislation will further encourage
the growth and development of wireless services by deterring
eavesdropping and affording subscribers even more privacy protection
than they have under current law.
Since the early days of wireless communications, Congress has tried
to protect the privacy rights of wireless communications. The original
Communications Act of 1934 made it illegal to intercept and divulge the
contents of any radio communications without authorization. Over the
years, Congress strengthened the laws governing wireless privacy when
it became apparent that existing protection was insufficient. For
example, in 1986 the Electronic Communications Privacy Act (herein,
``ECPA'') made it a crime to intentionally intercept wireless
conversations or to disclose the contents of those conversations. ECPA
also made it a crime to manufacture, sell, or possess a device that the
person knows is primarily useful for intercepting wireless
communications. In 1992, Congress amended the Communications Act to
prohibit the manufacture and importation of cellular frequency radio
scanners.
Unfortunately, despite Congress's efforts to protect wireless
privacy, electronic eavesdroppers have found loopholes in the law. For
example, one case was lost after prosecutors were unable to prove that
the eavesdroppers had ``intended'' to intercept wireless conversations
and another because the eavesdropper had not ``disclosed'' the contents
of a conversation. Other cases were lost because the ability of the
scanners to also scan non-cellular frequencies or perform other
permissible functions made it difficult to prove that the device was
``primarily useful'' for scanning cellular frequencies. Moreover,
because current law only covers scanners used to eavesdrop on
``cellular frequencies,'' it does not clearly prohibit equipment that
can intercept signals from newer PCS phones.
Emboldened by these loopholes in current law, hackers have
developed a ``gray market'' for modified and modifiable wireless
scanners. Some of these outlaws even advertise in magazines and on
Internet web sites that their scanners have cellular frequency blocking
components that can be easily overcome with minor alterations. The
information and equipment necessary to make these modifications are
also widely advertised, sometimes with blatant offers to unblock the
cellular frequencies after the equipment is purchased.
The Wireless Privacy Enhancement provisions attacks these problems
from several fronts. First, they expand the definition of the
frequencies that may not be scanned to include digital PCS frequencies
as well as cellular. I am pleased to say that this provision reflects a
compromise between CTIA and the amateur radio community and it ensures
that citizens are not prevented from listening to non-commercial radio
frequencies like those in the emergency or public safety bands.
Second, they clarify that it is just as illegal to modify scanners
for the purpose of eavesdropping as it is to manufacture or import
them. It also directs the FCC to modify its rules to reflect this
change. This provision will help reduce the growing ``gray market'' in
modified and readily modifiable cellular and PCS scanners and digital
decoders.
Third, they clarify that the Communications Act prohibits the
interception or the divulgence of wireless communications, either one
standing alone is prohibited.
Fourth, they increase the penalties under the Communications Act to
make them consistent with the penalties for violating the Electronic
Communications Privacy Act. Under the new penalty provisions, violators
will be subject to a fine of $2,000, six months in jail, or both for a
willful violation, and these penalties increase for repeat violations.
Finally, they require the FCC to investigate and take action
regarding wireless privacy violations under the Communications Act,
regardless of any other investigative or enforcement action by any
other federal agency. This provision will help ensure that these newly
strengthened privacy protections are fully enforced in the future.
The millions of Americans who use wireless communications deserve
to have their privacy protected. CTIA supports your efforts to improve
the security of wireless telephone calls, and again I commend Mrs.
Wilson and this Subcommittee for your work on the Wireless Privacy
Enhancement issue.
gao study of fcc regulatory fees provision of h.r. 3489
I would also like to indicate CTIA's support of Section 4 of the
bill--which directs the GAO to conduct a full review of how the Federal
Communications Commission has been assessing annual regulatory fees.
CTIA believes that such a study is long-overdue. For more than a year,
CTIA has been concerned with fundamental problems with the way the FCC
is assessing annual regulatory fees.
Most glaring is that for the wireless industry, the FCC bases fee
assessments on the number of wireless subscribers. Sounds reasonable,
but here's the flaw--the FCC has never figured out a methodology to
give itself an accurate way to determine the number of wireless
subscribers. Let me illustrate the problem in just one year--FY1999.
The FCC estimated the number of wireless subscribers at 55 million,
exactly the same number it estimated for FY1998 (even though the FCC
acknowledged the growth in wireless subscribers.) A little long
division led the FCC to send wireless carriers a bill for about 32
cents per subscriber for FY1999. But, when our industry calculates the
bill, we have to use the actual number of subscribers--which was not 55
million, but 69 million. Multiply the 32 cents by 69 million users, and
that alone means that the FCC has collected about $5 million more than
they should have. And, this is but one of many flaws in the FCC's
assessment methodology that leads to overpayment--and in our
competitive wireless industry, that means additional costs of wireless
consumers.
It is my hope that working together, FCC and CTIA can figure out
better way for the FCC to follow the specific Congressional direction
on fee assessment. But, I strongly believe that ``sunshine is the best
disinfectant''--and CTIA supports the call for a GAO study of the FCC's
regulatory fee assessment.
conclusion
I am honored to represent the wireless industry today and to pass
along to you the wireless industry's enthusiastic endorsement of the
Wireless Telecommunications Sourcing & Privacy Act. The
telecommunications industry is truly reshaping our world--which brings
new challenges and opportunities every day. I am proud of the
cooperative effort among state and local governments and industry on
this proposal. And, I again compliment the leadership of Congressmen
Pickering, Tauzin, Markey, Wilson and the other members of this
Subcommittee for turning our proposal into the legislation we discuss
today. We thank the Subcommittee for its work, and we hope that you are
able to turn this legislation into law before the Congress adjourns in
the Fall.
Mr. Tauzin. Thank you, Mr. Wheeler. The Chair recognizes
himself for 5 minutes. Let me first thank Mr. Pickering for his
fine work here and also thank him for including in the bill the
provisions of the Wilson bill, which as you know, has already
passed this committee, dealing with privacy and cellular
phones.
You remember Mr.--how many years ago was it, Tom, that we
had this demonstration in this room and we demonstrated how
easy it was to compromise people's privacy. I think we even
intercepted a call--it was 4 years ago?--intercepted a call
from Mr. Markey trying to take over this committee, remember,
by a coup d'etat, and we were able to prevent it because we
were intercept that cellular phone call. Here we are at this
point still trying to enact that legislation. I want to thank
Mr. Pickering for including it.
Let me ask you the basic question. Why does Congress need
to enact this legislation? Why can't it be agreed upon by all
of the parties and enacted by all the States the way uniform
commercial codes and other such agreements are acted upon?
What's the requirement for us to codify this agreement? Anyone?
Mr. Bucks.
Mr. Bucks. Mr. Chairman, members of the committee, the
reason is is because it's not clear that the States have the
authority to agree upon this rule of the primary place of use.
There is--it appears as though that the only Constitutional
authority to make that determination rests with Congress under
their commerce clause power. Otherwise, there is a question as
to whether or not the States have the authority to do that
themselves. It appears to be beyond their authority.
Mr. Tauzin. And we are essentially talking about consumer
taxes here. The consumers end up paying these taxes, and they
have a right to some protection uniformly under the Interstate
Commerce Clause.
Let me ask you this, too. Obviously section three of the
bill allows the States but does not mandate the electronic data
base. It allows the provider to establish a data base if the
State does not, and then it imposes upon the provider the duty
of due diligence in assuring that the data base is updated and
correct. What are the subscriber's rights? As a subscriber, I'm
going to pay taxes. If I'm listed wrong, if my primary locality
is wrong, do I have any recourse to make sure that it's
corrected? Do I do that through the provider? How is that going
to work, Mr. Wheeler?
Mr. Wheeler. Mr. Chairman, I'm flashing back to Mr.
Shimkus' point in the previous witness where he was talking
about being a tax collector and how he was constantly hearing
from consumers about this.
Mr. Tauzin. Yes.
Mr. Wheeler. So, I think that there are two answers to the
question, and that is that the consumer could go to both of the
parties. Now, the companies--when the consumer goes to the
company, the company has the ability then to work with the
local government in that regard to update. Similarly, the local
government has the right to turn to the company and say you
have to update the data base this way. So, it's a two-way----
Mr. Tauzin. So I could complain to the government or I
could complain to the provider. Either way, I should be able to
get some relief?
Mr. Wheeler. Yes, sir.
Mr. Tauzin. Now, let me ask you with reference to your
obligation of due diligence. What if you fail to update the
provider fields to adequately update the base and some
government loses money as a result? Does the bill at all cover
that, or is there any provision dealing with that in the
agreement?
Mr. Wheeler. I believe there is a provision that requires
making whole, if there is this kind of a grievous oversight,
Mr. Chairman, but again, what we're trying to do is to build a
new paradigm, if you will. This bill is a result of 3 years of
work by these parties. We believe that that work can continue
and that the bill empowers the States and the localities, for
instance, to say to the carrier, here is a problem in the data
base that you have developed. It likewise empowers the carrier
an opportunity to say to the State or locality, here is a
problem in the data base that you have developed.
Mr. Tauzin. Okay, but the concern I have is simply how
those rights are balanced. If the State establish--if Louisiana
establishes an electronic data base and providers don't do a
good job of keeping it up, it looks like it's their job to keep
it up. What happens?
Mr. Wheeler. There's a hold harmless clause in here that
only works if you have done the due diligence to keep it up.
You have every incentive----
Mr. Tauzin. So you don't have the benefit of the hold
harmless----
Mr. Wheeler. You have every incentive in the world.
Mr. Tauzin. [continuing] unless you have done due
diligence.
Mr. Wheeler. Yes, sir.
Mr. Tauzin. Thank you very much. The Chair yields to Mr.
Markey.
Mr. Markey. Thank you very much. Well, congratulations to
you all. The industry, multistate tax, commission, Governors,
municipal officials, you should have been the internet tax
commission. It would have been very helpful, I think, if we had
sent you to the work in those issues to a closure because
obviously you've figured out something here that's good for the
municipalities, good for the States, good for the industry,
good for the consumer. You know, creates, you know, one point
of nexus that everyone can rely upon, and gives everyone
confidence that there's going to be cooperation on all fronts.
I want to really praise you for reaching this agreement because
as we saw on the last panel, it's pretty easy to come up with a
lot of disagreements as well and make that the conclusion that
is presented to the Congress.
So, I hope that we can move this legislation as
expeditiously as possible through Congress. I want to
congratulate Congressman Pickering for his leadership in
helping us to focus on this issue and to get it on the fast
track, and thank you, Mr. Chairman, for putting together this
very timely hearing.
I'd like to raise a couple of issues, if I could, partly
related to the bill before us, but I think something that we
need to start thinking about in terms of repercussions in the
industry. The cellular industry is in the midst of an exciting
evolution. Increasingly, wireless consumers are going to be
able to get the internet on their wireless devices--news,
weather, sports, stock quotes, web pages. They'll all become
standard feature from wireless devices. We have wireless rates
plummeting over the last few years with many consumers opting
for flat rate pricing, with ever increasing buckets of minutes
that are advertised on a daily basis on every television and
cable channel in America.
Given the fact that we have in place an access charge
exemption for internet service providers from per minute access
charges, how will we handle cellular internet access issues?
Mr. Wheeler. Mr. Chairman, this bill deals with the nexus
between the consumer and the company and the taxing authority.
It does not deal with any transaction issues associated with
the net, and there are larger issues, as you point out, insofar
as access fees, et cetera, that are unassociated with this
piece of legislation.
Mr. Markey. Anyone else like to take that?
Mr. Scheppach. I'll jump in, Mr. Chairman. This is
obviously one of the concerns that the States have with respect
to extending the moratorium. Right now, it's relatively clean
and we know what the technology is that we're dealing with, but
there are two problems on the horizon. One is telephony that I
think 2 to 3 percent of telephone calls are, in fact, beginning
to go over the internet, which means that those current
telephone taxes will be avoided. Second of all, I think we're
all moving toward a bundling of services so that you're going
to have one line into your household that you will pay for
internet, telephone, content and the ball of wax at one time.
So, I think that this is a potential problem. The
technology is going so quickly, and yet we have very high taxes
on telephone and none on the internet. So, we are beginning to
dramatically bias our economic decisions. So, I just say that
the current moratorium on access fees is in place now for I
guess it's 2001 in November when it would run out. As I say,
there's probably little problem between now and then, but I
would argue that almost any extension of that would begin to
bias some of these decisions fairly dramatically.
Mr. Markey. So what happens when you're an internet service
provider and a telecom provider at the same time? Governor
Gilmore suggests that there should be an exemption for the
internet provider. How do we handle that issue?
Mr. Scheppach. Mr. Bucks probably knows better, but I think
under the current legislation, it's difficult to determine that
with respect to the language, and I think that you'd probably
end up in the court to try and determine whether it's
discriminatory or not or whether it's an internet fee or a
telephone fee.
Mr. Markey. And how do we handle the universal service
charges that cell phone companies will be paying but AOL won't
be paying in order to maintain this whole seamless--how do we
handle that issue?
Mr. Scheppach. I don't know. I mean, you clearly, if you
could step back from this issue, what it seems to me you want
is equality, and you probably would get that by lowering
telephone taxes quite dramatically because it's true that
they're probably 15 to 18 percent, and increasing the internet
access because those are the two that are going to be competing
with each other.
Mr. Markey. It's not fair to the cell phone industry right
now the way it's constructed. Do you agree with that, Mr.
Wheeler?
Mr. Wheeler. Yes, sir.
Mr. Markey. That's a leading question. Mr. Brooks?
Mr. Brooks. You have the ability to ask those kind of
questions. Your question prompts me back to some notes that I
made this morning having to do with the very questions you were
asking, having to do with tax policy for the 21st century. Mr.
Cox brought up the fact that we had to look at tax policy for
the 21st century, and when you look at what we're trying to
accomplish from a telecommunications standpoint, it sort of
hits me between the eyes that if some of the same
recommendations were made in 1900, that we have a moratorium on
all changes in a tax structure, as we look at new economy, we
look at new means of doing business, we would not have access
to a lot of the revenue streams that we have today from what
developed during the 20th century.
I think that what I would like to emphasize from a local
standpoint is that we do not have the answers to all of the
questions that are being asked, but I do believe that the work
on this particular piece of legislation drives home the fact
that if we as a community of business, local, State level,
Federal level, will keep an open mind and work together, we can
come to a resolution of many of the problems that face us. So,
your questions are to the point, and I don't know that we will
ever be able, you know, at this point, to----
Mr. Markey. I appreciate that. You know what, it would be a
very boring hearing if I didn't ask these questions because you
guys have done such a fabulous job, you've teased all of the
controversy out of this issue. You have absolutely solved all
of the, you know, the conflicts that exist in the areas that
you're treating, and so we're here, basically in the middle of
the afternoon trying to justify our existence, so I'm asking a
few questions that can maybe tee up some other issues which are
ultimately going to be central to this revolution which the
cell phone industry is driving.
In other words, at the bottom of all this is the question
of if AOL and the cell industry provide the exact same
services, which they will, should there be one set of fees on
the cell industry and a non-existing set of fees on AOL? I
don't think so.
Mr. Wheeler. And Mr. Chairman, having had you help me
answer the previous question, what I tried to say in my
summation is that the challenge is how do we keep up. It is an
incremental process. What's terrific about this piece of
legislation is that it addresses how do you keep up with these
changes. It doesn't address the whether the taxation should
occur, but you can't have one without the other.
So, the interesting thing that has happened here, if this
becomes law, is that it at least addresses a piece of the
challenge and creates a new paradigm for a piece of the
challenge that you are going to have to deal with, and in that
regard, this is significant progress.
Mr. Markey. Well, I want to compliment you. Again, the
dirty little secret of the subcommittee is that we're very glad
that there are not very many more panels like this that appear
before our committee because then we wouldn't be necessary up
here. So, we compliment you but we also recognize you as an
anomaly, and one that deserves a great credit.
Mr. Tauzin. And you have asked a good question, Mr. Markey.
Where was your moratorium when you needed it? Thank you, Mr.
Markey. You are fully justified in existing.
The Chair now yields to the vice chairman of the
subcommittee, Mr. Oxley, for a round of questions, and we'll
place Mr. Pickering in the chair, as I have another assignment.
Mr. Pickering.
Mr. Oxley. Thank you, Mr. Chairman. I've not heard so many
softball questions from my friend from Massachusetts since I've
been on the committee. I don't know whether he's changed his
stripes or just simply mellowed with age, but he did point out,
though, the issue of nexus, and this came up--some of you may
have been here for Governor Gilmore's testimony--the point that
he made was the necessity to focus in on the nexus issue as it
related to taxation, and those points that you made, I think,
also go for the internet commission and that somewhat elusive
goal of trying to nail down this whole nexus issue.
So, I would say that, my friend from Massachusetts, I
thought it was a good start by the Governor in his testimony,
specifically on the nexus issue, which is somewhat similar to
what these gentlemen were able to accomplish.
Mr. Bucks, you mentioned the exceptions for one State, the
single business tax. Is that Michigan?
Mr. Bucks. Yes, that is Michigan.
Mr. Oxley. I just wanted to clear that up. I'd like to ask
each one of you, as you know, Chairman Bliley and Chairman
Tauzin have introduced truth in the telephone billing
legislation that would provide for itemization of the
customer's taxes on their phone bills. Would that be an
appropriate application to wireless charges as well?
Mr. Wheeler. Well, I think that the issue--what's going on
here is what is in that line that says State and local taxes.
There are various legislative proposals saying it should be a
line, it should be multiple lines, what should be the
components and this sort of thing. What this tries to do is
make it a constant line so that it is the same this month as it
was last month, regardless of where you have been. In that
regard, it is very much a step toward full understanding and
disclosure of what is in the tax line on the consumer's bill.
Mr. Oxley. But the question was should that wireless tax,
if this bill were successful, should the concept of this bill
apply to the wireless tax, even though it is constant? In other
words, should the consumer have that as an itemized provision
along with the rest of his other billing information?
Mr. Wheeler. I believe that it is. That already is on the
bill today, and what we're trying to do is to make sure that
what is on the bill today is a constant.
Mr. Oxley. Anybody else?
Mr. Bucks. We would have no position on the larger issue of
raising, but I concur that what happens here is that because of
this bill, what appears on the line will be much more
understandable to the consumer because it will always be or
should be as a result of this legislation a constant percentage
of the charge and won't vary, depending upon where they have
been traveling in the last month or so, which is going to--
having--without this legislation, even if you have the item on
the line, if they check from 1 month to the other, they're
going to see that the percentage has changed and they're going
to wonder why. Because of this legislation, it should be a
constant percentage unless they change their place of primary
use. So, I think in some sense, they work together, although we
would have no position on the larger issue that she raised. We
certainly would have no objection to that. We think people
ought to know about the taxes they pay.
Mr. Oxley. Thank you. Mr. Brooks, you stated in your
testimony the existing system is administratively burdensome
and costly for consumers. I think we can all agree to that. If
we are successful with the new system of lowering costs to the
local and State governments, is there any likelihood that the
State and local governments could pass those savings on to the
consumer? Would the consumer benefit in that regard?
Mr. Brooks. I would certainly think they would. If this
current system stays in place, you're going to see a continuing
increase, you know, from the standpoint of trying to bring all
of this together from the burdensome standpoint. Really, when
you look at how taxes and costs are passed on, it never ceases
to amaze me that when a certain item has to go on the bill,
particularly from a city's standpoint, it seems that the higher
levels of government will say you have to pass this as an
ordinance within your city, which then becomes a local official
who has imposed a tax rather than some level of cost that has
been associated with it.
I would certainly hope that as we look at the efficiencies
of trying to look at revenue streams, that certainly we want to
pass on savings that are not needed from a government
standpoint back to the consumer. I think we should all do that.
Mr. Oxley. Thank you, Mr. Chairman.
Mr. Pickering. To my good friend from Massachusetts who is
expressing how boring this hearing is or how difficult it is to
celebrate the finding of a solution or making peace, and I
guess it is, for a town which too often celebrates conflict and
controversy, it is a great day for us to be able to come
together as a committee on a bipartisan basis with an industry
and with all other levels of government to celebrate what has
been a long, arduous process of getting here.
I think if any of you have read the great literary work
Leadership Lessons from the Civil War by Mr. Wheeler, you have
adopted his principles of being bold, innovative, and adapting
to the change that is occurring. We've gone since 1994, 20
million users of cellular or wireless telecommunications now to
88 million, and a $30 billion industry. For a State like mine,
Mississippi, the potential in the future, I think, lies
primarily or disproportionately on the wireless side. So, this
is one other step that will only accelerate and advance the
great applications, the benefits, and I hope the cost savings
that as we see the rapid deployment that have started over the
last 4 to 5 years continue. We all on this committee, who
represent constituents, celebrate the benefits that you are
bringing.
After saying all those nice things, let me see if I can
find a question or two, and my other objective here. Although
Mr. Markey may talk about internet taxation, it is my objective
to stay out of that fight for this legislation, get it through,
and see it signed into law and to maintain our focus.
To put this in context, my understanding is that there are
30,000 taxing jurisdictions. Could any of you tell me how many
States and localities impose a tax on wireless costs, just so
that we can have an understanding of the scope of
simplification that we're enacting.
Mr. Wheeler. We're all getting coached from behind here,
Mr. Pickering.
Mr. Bucks. If you have the information, would you provide
it to us?
Mr. Wheeler. 55,000 Is the number that we were just given.
Mr. Pickering. Oh, 55,000.
Mr. Wheeler. Yes, sir.
Mr. Pickering. Okay, and do they now currently, do all
55,000, or what percentage of those would impose a tax on
cellular telecommunications?
Mr. Wheeler. Okay, I'm sorry. It's the other way around.
It's 55,000 total, of which about 36,000, give or take, impose
on wireless.
Mr. Pickering. Okay. Now, you all represent the consensus
and the unity. Is there anyone in State or local government or
in industry that is opposing this agreement, to your knowledge?
Mr. Scheppach. No, not to our knowledge.
Mr. Wheeler. I don't think so.
Mr. Scheppach. As long as you make the two technical
amendments.
Mr. Pickering. And that is my follow-up question. Mr.
Bucks, I think that you had mentioned the need to amend section
three. Is there any opposition to that technical or conforming
amendment in relation to that one particular State?
Mr. Bucks. Not to my knowledge. I think those are
acceptable. They don't affect other States. In fact, there are
two States that are involved total here in the two provisions
that I called to your attention.
Mr. Wheeler. Let me be real specific, Mr. Pickering, and
from the industry side. Since these amendments were proposed by
the government side, the answer to your question is no, there
are no differences. Yes, we do support these amendments.
Mr. Pickering. The piece is complete. Let me ask just one
other question. The data bases, if you could for all of our
benefit, explain how those will work, who will be responsible,
who will administer the respective data bases. Mr. Wheeler, if
you would start.
Mr. Wheeler. Well, there is a structure here where there is
essentially a 2-year window to figure out the answer to that
question, okay, and I'm sure that it will vary from State to
State. The party to whom you look first is the State, and
because they have the best information and they are the taxing
authority.
The bill provides that if they do not, then the carrier may
step forward and develop a data base in lieu thereof, and
there's a 2-year window. It's very important. This 2-year
window is a critical component of the legislation because it
allows us to then begin us collectively to begin implementing
this whole new approach.
Mr. Pickering. Anyone care to add?
Mr. Bucks. I concur with Mr. Wheeler as to how the
structure works, and I just might add that there's already work
done in this area by the State of Washington with regard to
their entire sales and use tax structure in terms of developing
a data base of their local rates and making it available, both
in downloadable files as well as on the internet of their local
sales tax rates within that particular State. This is
technology that is available. It is doable. Yes, it requires
some effort by the States. If the States don't choose to do it,
the private sector can do it instead. So, it's not a mandate on
the States. It may be preferable for the States to go ahead and
do it, and we think that this is very workable.
Again, the State of Washington has already pioneered this
technology with regard to their entire sales and local sales
and use tax system in that particular State.
Mr. Brooks. Mr. Pickering, you see what you've created.
You've created a group of people who are willing to work
together, and if one doesn't do it, the other one says we'll
step in and do it. So, it seems to me that you have set a model
from the standpoint of looking at how are we going to as a
Nation approach a restructuring of a revenue stream for
government. You should be proud of yourself for doing that, and
we are willing to work with you there.
Mr. Pickering. I wish I could take credit here. You all
have done the work. It is a dangerous precedent for this town,
but we will celebrate today this model that you have
established.
I would like to take a moment to ask unanimous consent to
submit for the record a letter in support of this legislation
on behalf of the National Conference of State Legislatures. One
final question, Mr. Markey, if you have additional questions, I
will defer to you.
Mr. Markey. I thank you, Mr. Chairman. First of all for the
record, Mr. Oxley raised a piece of legislation which was
introduced by the chairman of this committee and the
subcommittee which is entitled the Truth in Billing Act of the
year 2000 which deals with all the fees and taxes that are paid
by telephone users, but in the interest of full disclosure, you
should know that I've also introduced a bill which is entitled
The Rest of the Truths in Billing Act of the year 2000, which
would also include all of the subsidies that rural America
receives from urban American, which would be a highly
illuminating that many, many people in my district----
Mr. Pickering. If the gentleman from Massachusetts would
yield, you can't just leave well enough alone.
Mr. Markey. No, I'm having a good time. We're here alone,
you know? Being from a rural district--you know what I was
about--I was about to actually compliment the, you know, the
gentleman from Mississippi and the author of the book on the
Civil War. His central point is that if Bill McGowan or Craig
McCaw was a southern general, you know, grits would be the food
of preference in Boston today, and what the lessons that they
bring to us is that you try to start out where you're going to
be forced to wind up because it's a lot prettier that way. It
looks good. Everyone wins, you know, and this is an excellent
model here for a peaceful resolution. We'll think of this as
like the Compromise of 1820 or 1850. We'll leave that internet
taxation issue to some subsequent point in time which might not
be resolvable in a peaceable fashion.
I'd like to just ask one final question if I could, and
that's back to Mr. Tauzin's earlier question. If a wireless
carrier does not exercise due diligence in maintaining its data
base, you stated that the company would not be held harmless
from tax liability. What about its customers? Would they pay
the tax?
Mr. Wheeler. The reality here, Mr. Markey, is that the
customer was always getting stuck with this tax. What we're
trying to do is to figure out what is a better mechanism for
making sure the right tax gets put on the right place, and I
think that what the answer, although I turn to Mr. Bucks here
for a second, but the issue is not specifically addressed to my
knowledge in the legislation.
Mr. Markey. Mr. Bucks is using up your last life line.
Mr. Wheeler. There is the relationship between the consumer
and the taxing authority.
Mr. Bucks. Mr. Chairman, or Representative Markey, our
understanding is that if the due diligence requirements are not
met, the consumer still has recourse, that the hold harmless
doesn't apply unless the due diligence standards are met so
that the consumer still has recourse if those due diligence
standards are not abided by.
Mr. Markey. Thank you all very much. Thank you, Mr.
Chairman.
Mr. Pickering. I believe that if we were to put this in
simple terms, if we were to use that last life line, a call to
a friend, if we called over the internet, it would be tax free.
If we called over a cellular or wireless phone, it would be
under a uniform simplified standard at this point in time.
Let me ask one final question and then I'll move to adjourn
our hearing. Are there any winners and losers in this whenever
you debate tax policy? That is always the question. Are there
some municipalities that could lose under this situation? What
does the community that you represent of State and local
governments project and predict as far as any winners or
losers?
Mr. Brooks. Mr. Chairman, are you speaking specifically of
this bill or as a general statement?
Mr. Pickering. No, of this bill.
Mr. Bucks. Mr. Chairman--I'm sorry, if you want to proceed,
Joe.
Mr. Brooks. No, go ahead, that's okay.
Mr. Bucks. As a general matter among the States, this is
viewed as largely revenue neutral and a wash. That is also
generally true with regard to local governments, but the
situation with regard to local governments is a little more
complicated, and there could be exceptions to that rule, but
what one needs to understand is that you might calculate that
there may be revenue gains or losses on a local level, but that
assumes a couple of things. No. 1, that the world remains the
same in terms of where people are located and where they're
making calls from. No. 2, it assumes that the tax system is in
fact viewed as workable over time. We came to the judgment that
with regard to wireless telecommunications, this system of
taxation wasn't really workable and sustainable over time
unless we simplified it.
So, in general, we do not believe that there are major
gains or losses across the country, certainly at the State
level. There may be some gains or losses at the local level
that cannot be entirely predicted, but that presumes that
everything stays the same out there at the local level and that
the tax system is workable, and we're not convinced that, quite
frankly, absent this legislation, that that's a fair
assumption, going forward for a long period of time.
Mr. Pickering. Mr. Brooks.
Mr. Brooks. Well, from a local standpoint, much of our
revenue stream, particularly in Virginia, as we are a Dillon
Rule State, it is determined at the State level. So, what we
have to do is to make sure that any legislation that, you know,
comes out of this particular bill, does make it, you know, a
revenue balancing situation, and this committee does not have a
real easy job before it to do a lot of these things, but we
certainly hope that we will begin to have a better relationship
between local, State, and Federal officials as we look at this
whole structure of revenue from one end to the other. We
appreciate your effort.
Mr. Pickering. Mr. Scheppach?
Mr. Scheppach. We--I second basically what Dan had said,
that we ran the actual numbers by States. There are some small
winners and losers of several million dollars here or there,
but it's not a very significant percentage of their total
revenue, so pretty much the States signed off on it.
Mr. Pickering. My sense of the question is that as you
simplify this, it will only accelerate the explosion of
cellular wireless, and those revenues that we're now seeing
double in the last 5 years will continue, which bottom line,
that everyone will benefit, and we'll see increased revenues
both in the private sector and to States and local governments.
So, it's a good thing. You all have done great work. I predict
that this legislation will pass the House and the Senate. It
will be signed into law, maybe one of the few
telecommunications accomplishments of this Congress, but it is
very significant.
Because there is no controversy, we should not say that it
is not without substance or significance, and this is a great
accomplishment. It is due to your work and your foresight, and
I commend you all, look forward to working with you.
I would ask unanimous consent, and hearing none, that I
will keep the record open for 30 days for any additional
questions. With that, the hearing is adjourned.
[Whereupon, at 2:07 p.m., the subcommittee was adjourned.]