[Senate Hearing 106-1131]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 106-1131

          S. 1755, THE MOBILE TELECOMMUNICATIONS SOURCING ACT

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 7, 2000

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi                  Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine              JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan            RON WYDEN, Oregon
SAM BROWNBACK, Kansas                MAX CLELAND, Georgia
                  Mark Buse, Republican Staff Director
            Martha P. Allbright, Republican General Counsel
               Kevin D. Kayes, Democratic Staff Director
                  Moses Boyd, Democratic Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 7, 2000....................................     1
Statement of Senator Brownback...................................     1
Statement of Senator Dorgan......................................     3
Statement of Senator Gorton......................................     4

                               Witnesses

Bucks, Dan R., Executive Director, Multistate Tax Commission.....    12
    Prepared statement...........................................    14
French, Irene, Mayor of Merriam, Kansas..........................     5
    Prepared statement...........................................     7
Scheppach, Raymond, Executive Director, National Governors' 
  Association....................................................     9
    Prepared statement...........................................    10
Wheeler, Tom, President, Cellular Telecommunications Industry 
  Association....................................................    20
    Prepared statement...........................................    22

 
          S. 1755, THE MOBILE TELECOMMUNICATIONS SOURCING ACT

                              ----------                              


                         TUESDAY, MARCH 7, 2000

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:36 a.m., in 
room SR-253, Russell Senate Office Building, Hon. Sam Brownback 
presiding.
    Staff members assigned to this hearing: Lauren Belvin, 
Republican Senior Counsel; Paula Ford, Democratic Senior 
Counsel; and Al Mottur, Democratic Counsel.

           OPENING STATEMENT OF HON. SAM BROWNBACK, 
                    U.S. SENATOR FROM KANSAS

    Senator Brownback. Then we will call the Committee meeting 
to order.
    I am glad to see so many people here. With the Chairman of 
this Committee involved in a little tussle today, I am 
impressed we have anybody here. So I thank you all for coming 
out today.
    The Committee today will hear testimony on S. 1755, The 
Mobile Telecommunications Sourcing Act of 1999. It was 
introduced by Senator Dorgan and myself in October.
    And I am also pleased to announce today that we have 
Senators Lott, Ashcroft, Cleland, and Kerry who have also co-
sponsored the bill.
    The legislation will create a uniform national framework 
for the taxation of wireless calls. The Mobile 
Telecommunications Sourcing Act is a product of more than 3 
years of negotiations between Governors, cities, state and 
local tax authorities and the wireless industry. They have 
worked long and hard to bring this bill to the point where it 
is today.
    The legislation represents a historic agreement between 
state and local governments and the wireless industry to bring 
sanity to the manner in which wireless telecommunication 
services are taxed.
    Wireless telecommunications has caught fire in the United 
States. The United States now has more than 12 times the number 
of wireless subscribers than it had in 1990. Almost 1 in 3 
people in the United States currently have a cell phone. And my 
guess is in this room, it is one in one person has a cell 
phone.
    Wireless telecommunications is expected to grow at a rate 
of 18 percent per year over the next several years. By 2004, 
wireless services in the United States are expected to achieve 
a penetration rate of 70 percent, which would mean that there 
would be 200 million wireless subscribers in the U.S. alone.
    But for as long as we have had wireless telecommunications 
in this country, we have had a taxation system that is 
incredibly complex for carriers and costly for consumers.
    Today, there are several different methodologies that 
determine whether a taxing jurisdiction may tax a wireless 
call. If a call originates at a cell site located in a 
jurisdiction, it may impose a tax. If the call originates at a 
switch in the jurisdiction, a tax may be imposed. And if the 
billing address is in the jurisdiction, a tax can be imposed.
    As a result, many different taxing authorities can tax the 
same wireless call. The further you travel during a call, the 
greater the number of taxes that can be imposed upon it.
    For example--and we have this example on a chart here, that 
you might want to turn a little bit so people can see. A 
businesswoman from Kansas makes 3 wireless calls on the way 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 to Seattle where she picks up a car to drive to Tacoma.
    In the round trip between the Seattle airport and Tacoma, 
she makes another 19 wireless calls. She makes her final 
wireless call of the day on the drive home from the Kansas City 
airport.
    During this one business day, and this is a real-life 
example, 39 wireless calls have been made, which require her 
wireless carrier to keep track of the tax rates and rules in 26 
different state and local taxing jurisdictions; 26, 1 day.
    This system is simply not sustainable, as wireless calls 
represent an increasing portion of the total number of calls 
made throughout the United States.
    To reduce the cost of making wireless calls, Senator Dorgan 
and I introduced this legislation, The Mobile 
Telecommunications Sourcing Act which has two primary 
components. First, the bill eliminates the multiple taxing 
problems of our current system. Only the state, local and sub-
local authorities in a consumer's place of primary use can 
impose a tax on a wireless call, regardless of where the call 
originates, terminates, or passes through. The place of primary 
use is either defined as the customer's home or business 
address.
    Second, the legislation establishes a mechanism for 
creating databases to determine the appropriate taxing 
jurisdictions for a customer's place of primary use.
    By creating this uniform system, Congress would greatly 
simplify the taxation and billing of wireless calls. The 
wireless industry would not have to keep track of countless tax 
laws for each wireless transaction.
    State and local taxing authorities would be relieved of 
burdensome audit and oversight responsibilities without losing 
the authority to tax wireless calls. And most importantly, 
consumers would see reduced wireless rates and fewer billing 
headaches. It is good news for all of us.
    In the example that I mentioned earlier, under our 
legislation--and we have got another chart which shows what it 
would be after this legislation would pass--the 39 wireless 
calls that my constituent made before would, for tax purposes, 
be deemed to have all taken place from her Kansas City address.
    As a result, only 3 taxing jurisdictions, Kansas City, 
Wyandotte County, and the State of Kansas, in which her 
business address is located, would have the authority to tax 
the 39 calls. So it would go down from the 27 to those 3.
    The Mobile Telecommunications Sourcing Act is a win-win-
win. It is a win for industry; a win for government; and a win 
for consumers.
    I thank Senator Dorgan for working with me in crafting this 
bill, and most of all, I thank the groups represented here 
today for coming together and reaching an agreement on this 
important issue.
    We will introduce the panels to make a presentation on 
this. But first, I would like to turn to Senator Dorgan, who 
has co-sponsored this legislation and been a leader in trying 
to simplify this arcane situation.

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Senator Brownback, thank you very much. I 
appreciate your leadership and work on this issue.
    And this will be an unusual sight for those who watch the 
legislative process. We are actually trying to solve problems 
and doing so in a way that simplifies an issue in a manner that 
allows government and industry to come together to view a real 
problem and find a sensible, thoughtful solution to it.
    Mr. Dan Bucks is here representing the Multistate Tax 
Commission, and I was chairman of that commission for a couple 
of terms some years ago. And when I was chairman, we created 
offices in New York and Chicago and began a program called 
Joint Auditing.
    And the reason we did that was as businesses in this 
country began more and more to do business in many states, the 
question became: How do you divide up their income for purposes 
of taxation? What portion of a business's income should be 
attributable to this state versus that state?
    Some states wanted to overreach and claim more income than 
was justifiable. And some businesses wanted to hide their 
income from all states. So you had both sides coming at it in a 
way that was kind of disingenuous.
    We decided, let us find a sensible way to apportion income 
that is fair to business and fair to state and local 
governments.
    This is very much the same kind of issue. With the growth 
of cellular telephone service, we have the kind of 
circumstances you described in your opening statement, where a 
telephone call can create so many different opportunities for 
state and local governments to claim nexus or jurisdiction for 
imposing some kind of a tax. That does not make any sense for 
the industry. It does not make any sense to have that kind of a 
murky situation exist for state and local governments.
    I want to say, especially, to Tom Wheeler from the Cellular 
Telecommunications Industry Association that when you 
approached the Congress a couple of years ago and said, ``We 
have a very practical problem, and we want to solve it. We are 
not interested in avoiding taxes anywhere at any time. We just 
want to solve a problem.''
    Our visits with state and local governments led us to 
understand they wanted exactly the same thing. They wanted to 
solve a problem and create some clarity. They did not want to 
overreach. They just wanted definition.
    I think that approach from you, Mr. Wheeler, gave us the 
nudge that was necessary to begin working with all of you who 
are here today to say, ``Let us find a simple, thoughtful, 
straightforward approach that solves this problem.''
    I believe that the legislation we introduced late last year 
does exactly that. My hope is that we will have a hearing today 
in which we have supporting testimony, and then we will be able 
to move this out of the Committee and through the Congress.
    My expectation is this legislation should be one of those 
few pieces of legislation that moves without great controversy, 
because it is so eminently sensible.
    Let me thank the League of Cities, the Governors' 
Association, the Multistate Tax Commission, and the CTIA.
    I have to speak on the floor at 10 o'clock, and I will be 
gone for about 20 minutes and then return, so let me apologize 
for not listening to all the testimony, but I shall return. 
That is a famous phrase, is it not, ``I shall return''?
    Senator Brownback. I shall return.
    [Laughter.]
    Senator Dorgan. But again, let me conclude by saying, 
Senator Brownback, your leadership here has been very 
important. I appreciate the opportunity to work with you on 
something this important.
    Senator Brownback. Thank you, Senator Dorgan.
    Senator Gorton, do you have an opening statement to make?

                STATEMENT OF HON. SLADE GORTON, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Gorton. Well, I, too, only have a very few minutes, 
and I would rather listen to the witnesses.
    Senator Brownback. Good enough. Thank you both for joining 
us.
    I would like to welcome all our witnesses today. They are 
Tom Wheeler, President of the Cellular Telecommunications 
Industry Association; Raymond Scheppach, the Executive Drector 
of the National Governors' Association; Dan Bucks, Executive 
Director of the Multistate Tax Commission; and in particular, I 
would really like to welcome the Mayor of Merriam, Kansas, 
Irene French, who I rode in on a plane with last night. 
Welcome, to our panelists.
    And I believe, Mr. Wheeler, we will--are we starting with 
you, or are we starting----
    Mr. Wheeler. Why do we not let the mayor go first?
    Senator Brownback. Yes.
    Mayor French, welcome to the Committee.

      STATEMENT OF IRENE FRENCH, MAYOR OF MERRIAM, KANSAS

    Ms. French. Thank you so much. I could say ditto to your 
opening statement and get up and leave.
    [Laughter.]
    That was very eloquent and thank you for saying those 
things.
    Mr. Chairman and members of the Committee, the National 
League of Cities is pleased to have this opportunity to share 
our views on the Mobile Telecommunications Sourcing Act.
    My name is Irene French. And I am the mayor of Merriam, 
Kansas, and the Chairwomen of the National League of Cities 
Finance, Administration and Intergovernmental Relations 
Steering Committee.
    The National League of Cities represents 135,000 mayors and 
local elected officials from cities and towns across the 
country. NLC member cities and towns range in size from our 
nation's very largest cities of Los Angeles and New York, to 
the very 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.
    Senator Brownback. Without objection.
    Ms. French. On behalf of the National League of Cities, I 
would like to express my gratitude to Senator Brownback and 
Senator Dorgan for introducing this Act.
    Your leadership on the issue clearly shows your respect for 
the principles of federalism and your confidence in state and 
local government's ability to resolve complex 
telecommunications issues with industry at the local level, 
without the need to preempt our traditional municipality 
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 provide important public safety benefits.
    As we enter the 21st Century, however, the 
telecommunications industry and state and local governments 
have been wrestling with the numerous difficult taxation issues 
presented by the changing marketplace and the technology.
    This bill is proof positive that local governments and 
industry can work together to forge solutions that address both 
the critical fiscal needs of our cities and business needs of 
the telecommunications industry.
    NLC welcomes the opportunity to develop a partnership with 
you, Mr. Chairman and the members of the Committee, to address 
this Act, and other joint efforts of local governments and 
industry relating to meaningful telecommunications tax 
simplification that maintains respect for local governments' 
fiscal needs and autonomy.
    In my testimony today, I want to voice the National League 
of Cities' strong support for this Act. This legislation is a 
culmination of a 3-year cooperative effort between wireless 
industry, the NLC, the National Governors' Association, the 
Federation of Tax Administrators, and the Multistate Tax 
Commission, which is most unusual.
    Working with our industry and our state partners, we have 
developed a measure that, we believe, provides a 
straightforward solution to a very complicated problem that, as 
things now stand, poses unresolved questions for both state and 
local governments and for the industry.
    From NLC's perspective, this legislation is a win-win-win 
for consumers, state and local governments and the wireless 
industry.
    The application of local taxes to wireless services 
presents unique and difficult problems both for local 
governments and for the wireless service providers.
    There has been considerable debate among industry and state 
and local governments, as well as legal scholars, as to which 
jurisdictions have the right to tax wireless calls.
    Is it the city, the county, the state from where the call 
originated, where the call terminated, where the wireless 
provider's transmission facility is located, or is it some 
combination of these, subject to apportionment or offsets?
    The Act answers these questions and others like it in a way 
that respects traditional notions of state and local 
sovereignty with respect to taxation that are essential to our 
idea of federalism.
    It is important to note that the bill does not create any 
new taxes, nor does it require that state or local governments 
impose any new taxes.
    The bill leaves the decision as to whether to impose a 
local tax on wireless service where it currently is, and where 
it properly belongs--the local government.
    The mayors and councils of NLC member cities have widely 
divergent views about whether to impose taxes on wireless 
services. Some have imposed such taxes, while many have not.
    Much, of course, depends on the budgetary requirements of 
each local government, the level of demands placed on it by 
residents for essential public service, and the scope of its 
taxing authority under state law.
    In our system of federalism, these are difficult balancing 
matters that are best left to local elected officials who are 
closest to the people. Wisely, we believe this bill does not 
seek to alter that balance.
    The bill is generally revenue-neutral among local 
governments, equitable among carriers and taxing jurisdictions, 
and considerably easier for carriers to comply with and for 
local government to administer and audit.
    For local government as well as industry, the bill 
addresses and clearly resolves several important issues--taxing 
nexus, collection and remittance of existing taxes due, and, of 
course, simplification and uniformity.
    The bill does not mandate any expenditure of state or local 
funding. The bill bolsters the ability of state and local 
governments to collect those taxes they choose to impose on 
wireless providers while, at the same time, greatly simplifying 
wireless providers' job of determining which taxes apply to 
them, and remitting those taxes to the proper taxing authority.
    The bill removes any doubt as to a local taxing 
jurisdiction's ability to impose an existing tax on wireless 
services by expressly recognizing the authority of those taxing 
districts whose boundaries encompass the customer's place of 
primary use, and preventing the exercise of taxing authority by 
any other local taxing jurisdictions that do not encompass the 
customer's place of primary use.
    The critical component of the bill is the concept of a 
customer's place of primary use. This must be either a 
customer's residential address or a customer's primary business 
address.
    By restricting tax authority to a single location and by 
allowing those taxing authorities where the customer's place of 
primary use is located to tax a customer's entire bill, the Act 
serves the twin objectives of simplicity and avoidance of 
conflicting tax claims.
    In addition to preserving our revenues, the 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 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 violating standards 
of tax fairness, depriving local governments of needed tax 
revenues to pay for vital services they provide, such as 
police, fire and emergency services.
    The Act would ease much of the local taxing authorities' 
current costs and burdens associated with audits, tax 
enforcement under our present law.
    And, of course, the bill would relieve both industry, state 
and local governments of high litigation costs resolving--
trying to resolve unanswered and difficult legal questions 
posed by our current tax regime.
    The bill's new method of sourcing wireless revenue for 
state and 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.
    The bill represents a public, private partnership that 
shows that state and local governments and the wireless 
industry can work together to produce beneficial results.
    Mr. Chairman and members of the Committee, I greatly 
appreciate your leadership on this issue and look forward to 
working with you on this crucial piece of legislation, and hope 
that it moves through passage, and is accepted by all.
    And we are very appreciative to you, Senator Brownback, for 
leading this result.
    [The prepared statement of Ms. French follows:]

      Prepared Statement of Irene French, Mayor of Merriam, Kansas

    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 Mobile Telecommunications Sourcing Act (MTSA). My name is Irene 
French, and I am the Mayor of Merriam, Kansas, and the Chairwoman of 
NLC's Finance, Administration & Intergovernmental Relations Steering 
Committee.
    The National League of Cities represents 135,000 mayors and local 
elected officials from cities and towns across the country. NLC member 
cities and towns range in size from our nation's largest cities of Los 
Angeles and New York to the 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 Senators Brownback and Dorgan for introducing the 
Mobile Telecommunications Sourcing Act (S. 1755). Your leadership on 
this issue clearly shows your respect for principles of federalism, and 
your confidence in state and local governments' ability to resolve 
complex telecommunications issues with industry at the local level 
without the need to preempt our 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 provide 
important public safety benefits. As we enter the 21st Century, 
however, the telecommunications industry and state and local 
governments have been wrestling with numerous difficult taxation issues 
presented by the changing marketplace and technology. This bill is 
proof positive that local governments and industry can work together to 
forge solutions that address both the critical fiscal needs of cities 
and business needs of the telecommunications industry. NLC welcomes the 
opportunity to develop a partnership with you, Mr. Chairman, and the 
Commerce Committee, to address the Mobile Telecommunications Sourcing 
Act and other joint efforts of local governments and industry relating 
to meaningful telecommunications tax simplification that maintains 
respect for local governments' fiscal needs and autonomy.
    In my testimony today, I want to voice the National League of 
Cities' strong support for the Mobile Telecommunications Sourcing Act. 
This legislation is the culmination of a 3-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 that, as things 
now stand, poses unresolved questions for both state and local 
governments and for industry. From the National League of Cities' 
perspective, this legislation is a ``win-win-win'' for consumers, state 
and local governments, and the wireless industry.
    The application of local taxes to 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 well as legal scholars, as to which 
jurisdictions have the right to tax wireless calls. Is it the city, 
county and state from which the call originated? Where the call 
terminated? Where the wireless provider's transmission facility is 
located? Or is it some combination of these, subject to apportionment 
or offsets?
    The Mobile Telecommunications Sourcing Act answers these questions 
and others like it in a way that respects traditional notions of state 
and local sovereignty with respect to taxation that are essential to 
our system of federalism. It is important to note that the bill does 
not create any new taxes, nor does it require that state or local 
governments impose any new taxes. The bill leaves the decision as to 
whether to impose a local tax on wireless service where it currently 
is, and where it properly belongs: the local government. The mayors and 
councils of NLC member cities have widely divergent views about whether 
to impose taxes on wireless services; some have imposed such taxes, 
while many others have not. Much, of course, depends on the budgetary 
requirements of each local government, the level of demands placed on 
it by residents for essential public services, and the scope of its 
taxing authority under state law. In our system of federalism, these 
are difficult balancing matters that are best left to local elected 
officials who are closest to the people. Wisely, we believe, the bill 
does not seek to alter that balance.
    The bill is generally revenue-neutral among local governments, 
equitable among carriers and taxing jurisdictions, and considerably 
easier for carriers to comply with and for local government to 
administer and audit. For local government as well as industry, the 
bill addresses and clearly resolves several important issues--taxing 
nexus, collection and remittance of existing taxes due, and, of course, 
simplification and uniformity. The bill does not mandate any 
expenditure of state or local funding.
    The bill bolsters the ability of state and local governments to 
collect those taxes they choose to impose on wireless providers while, 
at the same time, greatly simplifying wireless providers' job of 
determining which taxes apply to them, and remitting those taxes to the 
proper taxing authority. The bill removes any doubt as to a local 
taxing jurisdiction's ability to impose an existing tax on wireless 
services by expressly recognizing the authority of those taxing 
jurisdictions whose boundaries encompass the customer's place of 
primary use, and preventing the exercise of taxing authority by any 
other local taxing jurisdictions that do not encompass the customer's 
place of primary use.
    The critical component of the bill is the concept of a customer's 
place of primary use. This must be either a customer's residential 
address or a customer's primary business address. By restricting taxing 
authority to a single location, and by allowing those taxing 
authorities where the customer's place of primary use is located to tax 
the customer's entire bill, the Act serves the twin objectives of 
simplicity and avoidance of conflicting tax claims.
    In addition to preserving state and local government revenues, the 
Mobile Telecommunications Sourcing 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 violating 
standards of tax fairness and depriving local governments of needed tax 
revenues to pay for the vital services they provide, such as police and 
fire, and emergency services. The Mobile Telecommunications Sourcing 
Act would ease much of local taxing authorities' current costs and 
burdens associated with audits and tax enforcement under present tax 
regimes while, at the same time, preserving local authority to tax 
wireless calls. And, of course, the bill would relieve both industry 
and state and local governments of the high litigation costs of 
resolving the difficult and unanswered legal questions posed by the 
current tax regime.
    The measure would allow, but not require, states and municipalities 
to develop databases that assign each address to the relevant taxing 
jurisdictions. If such databases are not provided, carriers may develop 
their own, as long as they rely on nine-digit zip codes. From the 
National League of Cities perspective, this matter is not 
controversial. This measure provides much needed relief for state and 
local governments without impinging upon the essential responsibility 
of local taxing authority.
    The bill puts local governments and service providers on a level 
playing field by sparing them from the arduous task and expense of 
determining the taxability of every individual call included in a 
wireless service bill, including calls that crossed taxing 
jurisdictions multiple times during the same call. The bill 
accomplishes this by establishing a uniform standard--the place of 
primary use--for sourcing all wireless telecommunications services for 
all state and local governments that tax these activities. For local 
governments, uniformity that respects local autonomy is important, 
because it simplifies compliance for our cities and avoids multiple 
taxation.
    The bill's new method of sourcing wireless revenues for state and 
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. The bill represents a public-private partnership that shows 
that state and local governments and the wireless industry can work 
together to produce beneficial results both for themselves and, perhaps 
most importantly, for the consumers who are our constituents and 
industry's customers.
    Mr. Chairman and Members of the Commerce Committee, 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. We are appreciative of the continued federal recognition 
of the role of local governments in telecommunications and taxation. I 
would be happy to answer any questions that the subcommittee may have 
at the appropriate time.

    Senator Brownback. Thank you very much, Mayor French, and 
thank you for coming to town to testify on behalf of the 
organization and on behalf of your community as well.
    We look forward to some questions to discuss the issue with 
you too.
    I would like to call Mr. Scheppach, who is with the 
National Governors Association, and who will present testimony 
on behalf of the NGA.

 STATEMENT OF RAYMOND SCHEPPACH, EXECUTIVE DIRECTOR, NATIONAL 
                     GOVERNORS ASSOCIATION

    Mr. Scheppach. Thank you, Senator. I appreciate you 
inviting NGA to testify on S. 1755, The Mobile 
Telecommunications Sourcing Act.
    I would like to submit my full statement for the record. 
And I will just take about 2 minutes to summarize it quickly.
    Let me first thank you and Senator Dorgan for your 
leadership in sponsoring this legislation.
    Second, I would say that the Nation's Governors are in 
strong support of this legislation. We know that the maze of 
different state and local taxes has created a significant 
burden on the industry, with their different tax approaches; 
some with respect to taxing at the cell site, some at the 
billing address, and others at the originating switch.
    The current system of taxes was obviously created for 
copper-wired home telephones, not for mobile cell phones. Not 
only did it impose significant costs on the industry, but it 
was also confusing to consumers, and it created a significant 
amount of burden on state and local government to essentially 
monitor it.
    We appreciate the industry coming to us to negotiate this. 
And we do believe it is a win for the industry, for customers 
and for state and local government.
    What the bill does is simplify the bill as if all calls 
originate at the place of primary use. What this Act would do 
is as follows: First, it would provide customers with a simpler 
billing system.
    Second, it would preserve state and local tax authority.
    Third, it would reduce potential double taxation.
    Fourth, it would simplify and reduce costs on state and 
local government.
    Fifth, it would do a similar reduction of costs on the 
industry.
    And sixth, it would assist the transition to bucket of 
minutes 
billing.
    The Act would not impose any new taxes, would not reduce 
any overall tax obligation, meaning that the sum total would be 

neutral, and it does not mandate any additional state and local 
spending.
    Mr. Chairman, we look at this really as a model. We do 
realize that with technology changing and the new economy 
coming at us very, very quickly, that more and more we are 
going to have to be willing to sit down with the industry and 
negotiate out and--and solve problems. So we would like to also 
work in other areas.
    In summary, Mr. Chairman, the Nation's Governors are 
strongly in support of this legislation, and we hope that you 
will schedule an early markup and move the bill.
    [The prepared statement of Mr. Scheppach follows:]

 Prepared Statement of Raymond Scheppach, Executive Director, National 
                         Governers Association

    Senator Brownback and other members of the committee, thank you for 
inviting me to testify on S. 1755, the Mobile Telecommunications 
Sourcing Act. I am Ray Scheppach, Executive Director of the National 
Governers Association, and I am testifying today on behalf of the 
association.
    First let me thank you, Senator Brownback and Senator Dorgan, for 
your leadership and sponsorship of the Mobile Telecommunications 
Sourcing Act. The National Governers 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's 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're 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 Mobile Telecommunications Sourcing 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 the Mobile Telecommunications Sourcing Act 
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 Mobile Telecommunications Sourcing 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 Mobile Telecommunications Sourcing Act.
    Thank you again for inviting me to testify today on behalf of the 
National Governers Association. We look forward to continue working 
with you, your colleagues in the House, and the other groups 
represented here today to achieve passage of this important 
legislation. I would welcome any questions you might have.

    Senator Brownback. And that is certainly our intent to do 
that, to try to move it through both houses and get it to the 
President as soon as possible.
    Mr. Bucks, thank you for joining us. Dan Bucks is Executive 
Director of the Multistate Tax Commission. I look forward to 
your testimony.

 STATEMENT OF DAN R. BUCKS, EXECUTIVE DIRECTOR, MULTISTATE TAX 
                           COMMISSION

    Mr. Bucks. Thank you, Mr. Chairman. Mr. Chairman, members 
of the Committee, good morning.
    I am Dan Bucks. I am the Executive Director of the 
Multistate Tax Commission. The Commission is an organization of 
state governments that works with taxpayers to administer 
equitably and efficiently the tax laws that apply to interstate 
and international commerce.
    Forty-four states, including the District of Columbia, 
participate in various programs of the Commission.
    I will be submitting as well a written statement for the 
record. And I would----
    Senator Brownback. Without objection.
    Mr. Bucks. I am pleased to be here today to offer the 
Commission's enthusiastic support for S. 1755, The Mobile 
Telecommunications Sourcing Act, and am pleased to join with 
the Governors and the cities and the industry that are here 
today in support of this.
    The legislation does represent a common-sense approach to 
resolving a difficult issue involving the imposition of 
transactional taxes on mobile telecommunications services.
    I want to address the significant amount of work and 
cooperation that went into developing this legislation. Some 
years ago, the telecommunication industry approached state and 
local governments and asked state and local governments to 
address a number of--of critical issues. They continue to ask 
us to address a number of these issues.
    And this question of the situs and collection 
responsibilities for taxes assessed on mobile 
telecommunications services rose to the top and became the 
focal point of the early discussions--cooperative discussions 
between the industry and state and local governments.
    And so over the course of approximately 3 years and not 
without some disagreement from time to time, the industry and 
state and local governments worked cooperatively to develop the 
proposal that which is embodied in S. 1755.
    Now, one might ask, what is the--why is the Multistate Tax 
Commission--which is an organization of State governments that 
is very concerned with the protection of State sovereignty, why 
is the Multistate Tax Commission committed to working toward 
passage of Federal legislation affecting state taxing 
authority?
    Well, I think the answer is simple. And Senator Dorgan in--
in the press conference introducing this legislation emphasized 
the importance of protecting the Constitutional authority of 
the state and local governments, but also noted the unique 
circumstances affecting this industry and the--unique 
situations and complexities involved.
    And Senator Brownback, you have described very well and in 
great detail, the kinds of complexities and challenges involved 
where you have a mobile customer and a multiplicity of service 
providers and the challenges that the companies faced in terms 
of calculating the tax in these circumstances.
    In these unique kind of situations, the Federal Government, 
because of its power to regulate interstate commerce and solve 
issues of federalism, can assist state and local governments 
and the industry to achieve an efficient and equitable result. 
And that is what this legislation embodies.
    Now, let us--I would like to take just a few minutes to 
note some of the key characteristics of--of this legislation.
    First of all, its impact on state sovereignty: States 
retain the right to determine whether or not they wish to tax 
telecommunications services including mobile 
telecommunications.
    This legislation neither mandates nor prohibits such taxes. 
It only makes these taxes work better in the unique 
circumstances of mobile telecommunications where customers 
travel and make calls from several locations.
    If anything, the legislation reinforces state sovereignty 
by making state and local taxation work better in the context 
of this industry.
    Uniformity: Now, the key feature of this legislation is to 
provide a consistent rule for deciding where calls made by a 
wireless phone customer are taxable.
    And the rule provides for a place of primary use as the 
basis for taxation and this consistent rule of situsing for tax 
purposes leads to substantial simplifications and efficiencies 
that several have noted this morning.
    The use of technology to solve a technological problem is 
another characteristic of this particular piece of legislation.
    The legislation breaks new ground in terms of harnessing 
modern technology to help solve a problem that is created by 
modern technology. And specifically that is in terms of the use 
of certified tax rates for specific address localities that is 
embodied in this particular legislation.
    The use of technology as a part of the solution to tax 
problems arising from new ways of doing business due to new 
technology is something that I think will have wider 
applicability in other tax areas far and beyond the case of 
wireless telecommunications.
    But this is the--this is a--a ground-breaking use of it in 
the case of this legislation.
    The non-severability clause in this legislation is 
absolutely critical. Without that clause, the legislation could 
create an incentive for unfortunate litigation that would seek 
to convert this legislation from being of mutual benefit to 
states, localities and industries, to legislation that would, 
in fact, preempt state taxing authority and undermine state 
sovereignty.
    So the non-severability clause is a critical feature of 
this particular legislation.
    Now, I need to mention the fact that there are two 
technical points in the--in section 3 of the legislation that 
have been brought to our attention that we would like to 
correct via an amendment when the legislation is brought up for 
consideration. And these amendments are consistent with making 
national legislation compatible with our system of federalism.
    First, there will--there will be a technical amendment that 
will conform the Federal legislation to unique circumstances in 
one state's Constitution to allow telecommunications companies 
operating within that state that are subject to that state's 
business and occupations tax to calculate this tax base 
according to separate provisions that are required by that 
state's Constitution.
    Second, there will be an amendment to exempt one state's 
single business tax from inclusion of--under the legislation 
because of the differences in the way the tax is calculated 
between the legislation--the legislation and that tax.
    These changes are technical in nature, but they are 
important to make national legislation consistent with our 
system of federalism.
    We believe that our experience with working with industry 
on this legislation is an important step in continuing 
discussions to resolve other issues, and it is a great model 
for the future in terms of resolving those other issues.
    We want to thank you very much, Senator Brownback and 
Senator Dorgan, for your leadership in introducing--this 
legislation, guiding it through the Senate, and for your 
continued support of state and local governments.
    Thank you.
    [The prepared statement of Mr. 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.
    S. 1755, the Mobile Telecommunications Sourcing Act of 1999 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, 
S. 1755 preserves their sovereignty and taxing authority over state and 
local telecommunications tax structures.
    The Multistate Tax Commission is pleased to offer its support for 
S. 1755. A copy of the Commission's resolution supporting this 
legislation is attached to this statement.

II. The Proposal. In practical and general terms, S. 1755, the Mobile 
Telecommunications Sourcing 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 Mobile 
Telecommunications Sourcing 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. 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.

    C. Sec. 4 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.

VI. 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 Mobile Telecommunications Sourcing 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.

    Senator Brownback. I am happy to do so and thank you for 
your statement, Mr. Bucks.
    And now, Mr. Wheeler, we were going to start with you, and 
we will finish with you.
    Tom Wheeler, President of the Cellular Telecommunications 
Industry Association. Welcome.

         STATEMENT OF TOM WHEELER, PRESIDENT, CELLULAR 
            TELECOMMUNICATIONS INDUSTRY ASSOCIATION

    Mr. Wheeler. Thank you very much, Senator Brownback, and 
good morning. Thank you for the leadership that you and Senator 
Dorgan have been providing on this issue.
    I want to associate myself with my colleagues here who have 
uniformly been praising you and Senator Dorgan.
    And I also would like to associate myself with you and 
Senator Dorgan who have been uniformly praising my colleagues 
up here, because as Dan Bucks just said, this was a 3-year 
process.
    Things that are easy do not take 3 years to resolve. This 
has been an arduous exercise in good faith by both parties that 
has--by all parties that has created something that I think 
really moves the ball forward and, as has been said previously, 
creates a significant new milestone for this kind of policy 
issue.
    Let me reiterate what you have heard, that nothing that we 
are talking about in this legislation has any impact on any 
jurisdiction's tax powers; rather, that it establishes a common 
sense plan for the administration of those powers, a plan that 
reflects the fact that we are now a mobile society.
    The taxing power that local and state governments today 
exercise grew out of a sedentary society. If I walked down to 
Main Street and went to the hardware store, you knew where the 
taxable transaction occurred. If I picked up my telephone at 
home and made a call, you knew where the taxable transaction 
occurred.
    Wireless has stretched that model, however. The airwaves do 
not respect state boundaries, and mobility has taken the phone 
out of that fixed position across state and local governmental 
boundaries.
    The government has tried to deal with this as best they 
could, using the previous model, but things got confusing real 
fast.
    For instance, in Senator Dorgan's State of North Dakota, 
the taxing situs is the cell site from which the wireless call 
is made. Across the border in the State of South Dakota, the 
taxing situs is the switch that translates the call from one 
point to another.
    I am going to show you an example as to what that means. 
Here is a situation where you have a call being made down here 
in Town A, picked up by an antenna in Town B, and switched by a 
switching facility in Town C. Now, who collects the tax?
    Another example, if you get on I-95 and you drive 104 miles 
from Baltimore to Philadelphia, you go through 12 distinct 
state and local taxing jurisdictions.
    You are making calls all along the way. It takes you a 
couple of hours to make the drive. And you are making calls all 
along the way. How do localities sort out who gets the tax? How 
do the carriers sort out who gets the tax?
    And imagine the consumer at the end of the month when they 
get a bill that has a line item on there that says state and 
local taxes, and this month it is wholly different from the 
previous month, because of the fact that they went to 
Philadelphia, instead of going to Harrisburg, or something like 
this.
    And so what this bill does is to create a common approach. 
Let us go back to your peripatetic business woman example that 
you gave at the outset, if we can look at that. Actually, let 
us look at the second one. Let us look at the ``after'' one.
    The significant thing here is that all 39 calls remain 
being taxed. And as a matter of fact, in this instance, as you 
pointed out in your statement, they are taxed with stacked 
taxes. The city has a tax. Wyandotte County has a tax. And the 
state has a tax that applies to all 39 of those calls.
    But it is one location. It is simpler for the consumer. It 
is simpler for the state and local governments. It is simpler 
for the carriers to enforce.
    And obviously if we pick any other point--somebody comes 
from Senator Gorton's State of Washington and goes to the other 
way around the triangle, the same kinds of concepts would 
apply.
    The airwaves cannot be taught to respect political borders. 
And Americans are a mobile society. That leaves us with two 
choices. Either we can develop very complex procedures that run 
up the cost to government to taxpayers and run up the cost of 
service to consumers; or we can enact the Brownback/Dorgan 
common-sense plan that eliminates headaches, and saves everyone 
a bundle.
    One final aspect, Mr. Chairman, is the determination of the 
taxing authority in which the PPU, the place of primary usage 
resides. There are two solutions to that in the bill.
    One, state and local governments may develop--may, 
underline, develop their own datebase using zip codes. If they 
do not, the carriers can develop a datebase.
    There is going to be a couple-of-years period after 
enactment where this can be worked out among the carriers and 
the states as to how they want to phase in.
    But what is significant here is that really for the first 
time, both local governments and carriers are going to know the 
impact of an annexation that has changed the taxing 
jurisdiction, or other kinds of changes that happen along the 
way.
    Finally, on the question of the Federal nature of this, 
this is clearly a Federal issue. The problem today is a lack of 
uniformity. That is why the cities, the legislatures and the 
Governors along with the industry all support this common-sense 
approach and are grateful to you for your leadership.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Wheeler follows:]

        Prepared Statement of Tom Wheeler, President, Cellular 
                Telecommunications Industry Association
Mr. Chairman and Members of the Committee:

    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 percent 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.

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 Senator Brownback's home state of 
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 Proposal, S. 1755, the Mobile Telecommunications 
        Sourcing 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 
3 years of discussions, CTIA and representatives from the National 
Governers 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 Senators Brownback and Dorgan, we were able 
to come together to forge this proposal. Senators Brownback and Dorgan 
have introduced legislation--S. 1755--that implements the ideas we have 
worked so long to craft. With the leadership and assistance of Chairman 
McCain, Telecommunications Subcommittee Chairman Burns, Senator 
Hollings and all members of this committee, 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 effect whether a jurisdiction may tax, it only prescribes how 
it may tax.

Which Taxes Are Covered?
    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 Mobile Telecommunications Sourcing 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 are 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 3 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.

Conclusion
    In conclusion, the Mobile Telecommunications Sourcing Act 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.
    I am honored to represent the wireless industry today and to pass 
along to you the wireless industry's enthusiastic endorsement of the 
Mobile Telecommunications Sourcing 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 Senators Brownback, Dorgan and the other 
members of this Committee for turning our proposal into the legislation 
we discuss today. The wireless industry stands ready to participate in 
more of these partnerships, helping to create new systems of governance 
for the 21st century.
    Thank you for your consideration of our views.

    Senator Brownback. I thank you, Mr. Wheeler.
    And thanks to all of you for working so hard and diligently 
over the 3 years to try to solve a--a pretty vexing problem, 
where everybody had to look and see what they could do best to 
help--help solve it.
    And this is an unusual situation where we have so many 
people here in agreement on a bill and nobody in disagreement, 
which is what it is going to take this year, I think, to move 
things through. There is just going to have to be a lot of 
agreement.
    Let me ask each of you a couple of questions, if I could. 
First, Ms. French, I am wondering if in Merriam or the National 
League of Cities in general, if they have quantified the cost 
savings that local governments would achieve by eliminating the 
current cost and burdens associated--such as auditing and tax 
enforcement functions that are related to these wireless 
transactions.
    I did not know if you had--you had mentioned in your 
testimony about the burdensome cost of--of enforcing the 
current system, if the League of Cities or----
    Ms. French. I do not have a dollar figure, Senator. It 
varies from city to city. But I can get that dollar cost to you 
from our staff.
    Senator Brownback. That would be good to have, because I 
would think that this would be a very burdensome tax to carry 
out as currently situated and as it currently operates.
    Ms. French. Absolutely.
    Senator Brownback. Mr. Wheeler, can you quantify the amount 
of money that wireless carriers would save if this legislation 
became law, putting in a simpler approach to taxation?
    Mr. Wheeler. I agree with the mayor. It is very difficult 
to get down and give you a rock hard number because of so many 
nuances along the way. We are clearly, however, talking about 
some substantial administrative costs, both for carriers and 
local governments.
    What is really significant, though, I think, Mr. Chairman, 
is that this situation is not going to get better. It is only 
going to get worse. It is only going to get more expensive as 
there is a growth in the number of wireless subscribers as you 
indicated in your opening remarks.
    And as ``one-rate,'' national roaming becomes a reality, 
where you take your phone anywhere.
    So this is a situation that you are actually nipping in the 
bud. It is a substantial administrative challenge today and 
burden. It has substantial costs and those costs are only going 
to get worse.
    Senator Brownback. Mr. Bucks, how difficult will it be for 
the states to design and maintain their own datebase systems to 
implement this legislation if we went--if we went that route?
    Mr. Bucks. Well, the difficulty is not excessive or not--
not an overwhelming challenge. States--some states, such as the 
State of Washington, have already pioneered this kind of tax--
tax--tax datebase of rates for their local governments in that 
particular state.
    And it is not an overwhelming task. It is--it is a tax 
that--to be done well, does impose an upfront challenge to 
state governments, but it is not an overwhelming one.
    And the payoff in the long term is--is substantial for 
both--for all the parties involved, state and local governments 
and for the industry. In other words, it will be a wise 
investment.
    But the technology is there, and it has already been 
pioneered in the State of Washington is what I am trying to say 
here.
    Senator Brownback. So you do not think it will be a 
difficult thing to develop, the datebase?
    Mr. Bucks. Well, there is--there are the software methods 
that--we know that the software technology is there. We know 
that there are information--methods of gathering the 
information.
    In fact, what we are discovering is that in many instances, 
state governments have had for some time information about 
local taxing jurisdictions in their property tax systems that 
need--that can be drawn upon to be utilized over here in the 
context of transactional taxes.
    So the information is there. The technology is there, and I 
think the commitment is there. And that is--that is what you 
need, and so I think with the combination of the 3 things, we 
can move forward on this.
    Senator Brownback. Mr. Scheppach, do you have any comment 
on that, on the sense of how many states will create their own 
datebases to deal with this law and this situation?
    Mr. Scheppach. Not really. I would rely on Dan, who--who 
deals more directly with the tax people, so----
    Senator Brownback. Okay.
    Mr. Wheeler, I want to take you back to an earlier 
statement. But I want to make something clear, as I did at the 
press conference when we announced this bill.
    Mr. Bucks, you were kind of mentioning that this might be a 
template for other difficult taxing issues that we have when we 
go from--I do not think I want to put it quite like taxing a 
sedentary society. That sounds like a society of couch 
potatoes.
    [Laughter.]
    But anyway, we continue to move to a more mobile society 
and an aggressively mobile society. We are not trying to design 
this will for future issues or for future tax transactions. 
That is a whole other kettle of fish. And I do not know how 
long that is going to take to work out. It could take some 
period of time.
    I appreciate your support for the bill and statement of 
that regard. I am just saying, as a sponsor, that is not what 
we are trying to get at.
    We want to pass this bill this year. We think it makes good 
sense for the industry and for the nation, and not necessarily 
as saying, ``This is the way you figure out these other 
difficult taxing problems.''
    So I do not want to have any of my colleagues think that 
this is step one of moving forward on some other issues that we 
are hearing a lot about from other people.
    Mr. Wheeler, you talked about, you know, when you have 
these approaches where you have a bucket of minutes that you 
buy and the billing plan impacts determination of the proper 
taxing jurisdiction.
    How do you see this particular piece of legislation 
impacting that situation as we go increasingly toward those 
bucket of minutes approaches?
    Mr. Wheeler. That is a really good question. And it is 
going to facilitate the growth of these bucket plans. And we 
all know that the impact that these bucket plans have had is to 
lower the cost to consumers.
    But let us take a specific example. A consumer buys 1,000 
minutes of use. It costs him $100. It is 10 cents a minute. The 
1,001 minute costs him 25 cents. They use 1,005 minutes for the 
course of the month. So their total bill is $101.25.
    Was the minute that was used the 10-cent minute used in 
their home area, or was it one used in an outside area? How do 
you determine when you have this reality of, ``Well, here are 
some 10-cent minutes and here are some 25-cent minutes,'' and 
who gets the right to tax a 25-cent minute, and who does not? 
Did I use that 25-cent minute when I was across the border, or 
did I use it here at home? And how do you prove that?
    And so it becomes incredibly complex and a hindrance to 
this kind of price lowering, pro-consumer marketplace--
competitive-marketplace driven innovation of the industry.
    So what your bill does is really simple. It says, ``We will 
not worry about where.'' The answer is: It is at the place of 
primary use. That is where it will get taxed.
    We do not worry about ``Was it a 25-cent minute here and a 
10-cent minute there,'' or whatever the case may be. It is one 
place that we tax, and we tax the full number.
    Senator Brownback. And that may not sound like much to some 
people, but the total value of wireless calls made in America 
today, do you--do you have a rough number?
    Mr. Wheeler. About $40 billion.
    Senator Brownback. Today?
    Mr. Wheeler. Today.
    Senator Brownback. Of value of wireless calls. And what are 
you projecting that to be in 5 years? Is there--are there 
industry projections?
    Mr. Wheeler. It depends upon who you listen to, but a lot 
larger.
    [Laughter.]
    Senator Brownback. Particularly as you get Internet access 
over wireless.
    Mr. Wheeler. And what we are seeing is an increased minutes 
of use. I mean, as the price goes down, usage goes up. It only 
makes sense.
    What that does, however, is trigger exactly the question 
you raised. And that is, ``Oh, my goodness. I have gone over my 
big bucket into something else now. How does that additional 
fee get taxed and who gets to claim it?''
    That is a real----
    Senator Brownback. Nightmare, is it not?
    Mr. Wheeler. Right.
    Senator Brownback. What was it 5 years ago, the total value 
of wireless calls in the country, if it is $40 billion today? 
Just to give us some perspective on how that is going.
    Mr. Wheeler. Five years ago, I would say we were probably 
at about $15 billion. I mean, it has had--there is a 
significant growth curve.
    We are Mr. Chairman, we are adding one new subscriber every 
two and a half seconds, 24 hours a day, 365 days a year.
    And when those people sign up under this bill, they will be 
asked, ``What is your place of primary use,'' and that--at that 
point in time we will solve all these issues that we are up 
here trying to wrestle with. That is progress.
    Senator Brownback. And they are--you are not only getting 
more subscribers, but they are also using their cell phone far 
more per subscriber than they were 5 years ago.
    Mr. Wheeler. Yes, sir.
    Senator Brownback. Do you have any average numbers on that 
by per-subscriber use?
    Mr. Wheeler. Yes. It used to be that the rule of thumb was 
about 100 minutes a month. And now what we are seeing----
    Senator Brownback. A 100 minutes a month.
    Mr. Wheeler. A 100 minutes a month. Now, what we are 
seeing----
    Senator Brownback. That is almost a laughable amount, now.
    Mr. Wheeler. What we are seeing is 300 and 400 minutes a 
month averages not being atypical. And what is significant 
there, Senator, is that your average residential subscriber 
uses about 1,200 minutes a month.
    So we are now talking about 25 to 30 percent of the total 
minutes of use, they are now moving over into a wireless 
environment and triggering this problem.
    Senator Brownback. And then when you have more Internet 
access on the wireless, you anticipate, I would say, presume, a 
large increase then in the usage and the time on?
    Mr. Wheeler. Yes, sir. As a matter of fact, in 5 minutes 
one of the investment banking houses on Wall Street is holding 
a conference call on that very issue and what is going to be 
the impact of the Internet on wireless usage.
    And projections are a significant increase. And that, 
again, just messes up this whole situation even more, unless we 
do something about it today.
    Senator Brownback. Are there projections on the impact on 
the wireless industry of readily available and economically 
available Internet access?
    Mr. Wheeler. Yes. I will be happy to give you a for 
instance. Lehman Brothers just came out with a very good 
analysis of this, and they are now projecting that, I believe, 
Senator, it is by 2007, 50 percent of wireless subscribers will 
be accessing the Internet wirelessly.
    Senator Brownback. They will be on wireless to access the 
Internet.
    Mr. Wheeler. One of the services you will be able to get on 
your wireless phone is to access the Internet.
    Senator Brownback. But you are saying that 50 percent of 
the wireless access will be for Internet by 2007?
    Mr. Wheeler. No, the projections are that 50 percent of 
wireless consumers will have wireless Internet access.
    Senator Brownback. I saw a guy who was in my office the 
other day that had his Internet access phone, I guess you would 
call it--I mean, what do you call them now? What--what is it? 
It is not a phone, but----
    Mr. Wheeler. It is a--well, there is a--there are numerous 
devices. You can call it a phone. You can call it a PDA, a 
personal digital assistant. You can call them Internet access 
device. We have not quite got the names down yet.
    Senator Brownback. PDA, Okay. I had not heard that one yet. 
I will have to get my PDA.
    [Laughter.]
    But he was pulling up my weather in Topeka, Kansas from 
here. I had not thought about where he was being taxed, because 
he was from New York. He was in Washington, and he was calling 
up Topeka information.
    So I at least hoped at that time, he was being taxed in 
Topeka. But under this bill, he would be taxed in New York.
    And I just think, you know, as we go forward, hopefully, we 
can move this legislation this year to solve a problem, because 
when you are talking about $40 billion now, going up to 80 
million or 90 million subscribers, and its not just the number 
of subscribers, but the number of minutes that they will have, 
so I think passing this bill is one of the key things that we 
can do to try to hold costs down as much as possible within the 
taxation system.
    That is what this legislation is aimed at being able to do, 
and also making it simpler for cities and for Governors in 
being able to tax in a sensible fashion, but not having to 
track down everybody that is using a wireless system going and 
passing through your state or through your taxing jurisdiction 
of a community or of a county of government.
    Do any of you have anything additional you would like to 
add to your testimony or responses to other questions that have 
come up? Anybody else?
    [No response.]
    Senator Brownback. Mr. Wheeler, one other question I want 
to ask you. What impact would this legislation have on the 
line-item charges that currently appear on consumer bills? What 
will it look like after this legislation?
    Mr. Wheeler. I think that the impact on consumers of this 
is going to be to simplify and make more understandable what 
those line item charges are.
    As I indicated a minute ago, there is normally a line on 
the bill that says state and local taxes. Now, that number can 
today gyrate all over the place depending----
    Senator Brownback. And does.
    Mr. Wheeler.--and does, depending on where you have been 
and what taxing authorities and this sort of thing.
    What this is going to do to consumers is to remove the, 
``My goodness, this does not make any sense. Last month it was 
this. This month it is that. Why is it?''
    Senator Brownback. And I use the same amount of calls. My 
total telephone bill, absent taxes, was virtually the same.
    Mr. Wheeler. Right, exactly.
    And so they call us, and they say, ``Well, why is this?'' 
And--and--and we would say, ``It all depends on where you go.''
    ``Well, why?''
    ``Well, because it depends on whether it is the cell site 
in one place, or the switch in another place,'' or--and all of 
these kind of things, and that does not compute to consumers.
    Okay. Consumers want to know, ``What is it going to cost 
me. Can I expect some stability in that? Does it make sense?'' 
And that is what this bill does. It creates simplicity and 
creates understandability for that line item on the bill.
    Senator Brownback. Mr. Bucks, amongst the various taxing 
authorities across the nation, has this been an area of great 
dispute between various taxing jurisdictions, or has it just 
been mostly a headache to date?
    Mr. Bucks. I would put it in the latter category of--of 
primarily an administrative burden for the industry. I do not 
think it has been the source of--of major disputes, certainly 
not at the state level. I am not sure if there have been some 
disputes at the--at the local level or not.
    But I think it is just the administrative--the perception 
of--of state and local governments is that the current 
situation just creates an administrative burden and some 
confusion and complexity that is not needed to make the tax 
system work sensibly. And that is, I think, the--the major 
perception out there.
    Senator Brownback. Do you--do you have numbers, or could 
you provide them to the Committee, of the amount of taxation 
revenue that is generated currently from the wireless industry 
to state and local authorities? Do you--do you have those 
available today?
    Mr. Bucks. I do not have those available right here, but we 
will submit what information we have on that subject in terms 
of the tax revenues involved.
    Senator Brownback. If--if you could, and if you have 
projections of what those will be in, you know, the upcoming 
years, if you have any of those, I would appreciate those for 
the record as well, because I am certain we are not talking 
about a small amount of taxation revenue that is--that is 
coming in. So I would like to be able to have that for the 
record. And it is going to be growing substantially.
    Good. Well, I want to thank each of you for coming. I am 
certain Mr. Dorgan regrets not being here. He, unfortunately, 
was called to the floor and had a presentation that he had to 
make on the floor.
    We will keep the record open for the requisite amount of 
time, so Senator Dorgan may be submitting some post hearing 
questions to you. And as I stated previously, we are going to 
try to move this legislation as rapidly as possible.
    Senator Lott has signed on as a co-sponsor of the bill. 
That is always a good sign on moving legislation. When you get 
the majority leader to co-sponsor a bill, it makes eminent 
sense.
    The current taxing situation is a big problem now. It is 
going to be a bigger problem in the future. We have got 
uniformity of agreement of the various taxation entities and 
the industry. This just makes good sense to move on forward, so 
we are going to try to press forward as rapidly as we can.
    With that, thank you all very much for your informed 
testimony. Good day.
    [Whereupon, at 10:30 a.m., the hearing was adjourned.]

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