[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.]
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