[House Report 106-631]
[From the U.S. Government Publishing Office]



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-631

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



 
              REPEAL OF FEDERAL COMMUNICATIONS EXCISE TAX

                                _______
                                

  May 22, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3916]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3916) to amend the Internal Revenue Code of 1986 to 
repeal the excise tax on telephone and other communication 
services, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
 I.  Summary and Background...........................................2
        A. Purpose and Summary...................................     2
        B. Background and Need for Legislation...................     2
        C. Legislative History...................................     2
II.  Explanation of the Bill..........................................3
        A. Present Law...........................................     3
        B. Overview of History of Communications Excise Tax......     4
        C. Reasons for Change....................................     5
        D. Explanation of Provisions.............................     5
III. Votes of the Committee...........................................5

IV.  Budget Effects of the Bill.......................................5
 V.  Other Matters To Be Discussed Under the Rules of the House.......7
VI.  Changes in Existing Law Made by the Bill, as Reported...........10

  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. REPEAL OF FEDERAL COMMUNICATIONS EXCISE TAX.

  (a) In General.--Chapter 33 of the Internal Revenue Code of 1986 
(relating to facilities and services) is amended by striking subchapter 
B.
  (b) Phase-out of Tax.--Paragraph (2) of section 4251(b) of such Code 
(defining applicable percentage) is amended to read as follows:
          ``(2) Applicable percentage.--The term `applicable 
        percentage' means--
                  ``(A) 2 percent with respect to amounts paid pursuant 
                to bills first rendered on or after the 30th day after 
                the date of the enactment of this subparagraph and 
                before October 1, 2001, and
                  ``(B) 1 percent with respect to amounts paid pursuant 
                to bills first rendered after September 30, 2001, and 
                before October 1, 2002.''.
  (c) Conforming Amendments.--
          (1) Section 4293 of such Code is amended by striking 
        ``chapter 32 (other than the taxes imposed by sections 4064 and 
        4121) and subchapter B of chapter 33,'' and inserting ``and 
        chapter 32 (other than the taxes imposed by sections 4064 and 
        4121),''.
          (2)(A) Paragraph (1) of section 6302(e) of such Code is 
        amended by striking ``section 4251 or''.
          (B) Paragraph (2) of section 6302(e) of such Code is 
        amended--
                  (i) by striking ``imposed by--'' and all that follows 
                through ``with respect to'' and inserting ``imposed by 
                section 4261 or 4271 with respect to'', and
                  (ii) by striking ``bills rendered or''.
          (C) The subsection heading for section 6302(e) of such Code 
        is amended by striking ``Communications Services and''.
          (3) Section 6415 of such Code is amended by striking ``4251, 
        4261, or 4271'' each place it appears and inserting ``4261 or 
        4271''.
          (4) Paragraph (2) of section 7871(a) of such Code is amended 
        by inserting ``or'' at the end of subparagraph (B), by striking 
        subparagraph (C), and by redesignating subparagraph (D) as 
        subparagraph (C).
          (5) The table of subchapters for chapter 33 of such Code is 
        amended by striking the item relating to subchapter B.
  (d) Effective Dates.--
          (1) Repeal.--The amendments made by subsections (a) and (c) 
        shall apply to amounts paid pursuant to bills first rendered 
        after September 30, 2002.
          (2) Phase-out.--The amendment made by subsection (b) shall 
        apply to amounts paid pursuant to bills first rendered on or 
        after the 30th day after the date of the enactment of this Act.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 3916, provides relief to individuals and 
small businesses by repealing the Federal communications excise 
tax.
    The bill reduces the Federal communications excise tax in 
one percentage point increments, beginning with amounts paid 
with respect to bills rendered 30 days after enactment and 
continuing until the tax is repealed (beginning on October 1, 
2002).

                 B. Background and Need for Legislation

    The Federal communications excise tax originally was 
enacted in 1898, for toll telephone service only. After being 
repealed and reenacted several times, the tax was reenacted in 
substantially its current form in 1941, on both toll and 
general local service. The current provisions of law are 
outdated relative to current communications technology. 
Modifying the provisions to include communications by, e.g., 
Internet transmission, would add significant complexity to the 
law in addition to being inconsistent with Congressional 
objectives to foster development of the Internet.

                         C. Legislative History

    The bill, H.R. 3916, was introduced by Mr. Portman on March 
14, 2000. The Committee marked up the bill on May 17, 2000, and 
approved the bill with a Chairman's amendment in the nature of 
a substitute, by a voice vote (with a quorum present).

                      II. EXPLANATION OF THE BILL


                             A. Present Law


In general

    A three percent Federal excise tax is imposed on amounts 
paid for communications services (Code sec. 4251).\1\ 
Communications services are defined as ``local telephone 
service,'' ``toll telephone service,'' and ``teletypewriter 
exchange service.'' \2\ The person paying for the service 
(i.e., the consumer) is liable for payment of the tax. Service 
providers are required to collect the tax; however, if a 
consumer refuses to pay, the service provider is not liable for 
the tax and is not subject to penalty for failure to collect if 
reasonable efforts to collect have been made. Instead, the 
service provider must report the delinquent consumer's name and 
address to the Treasury Department, which then must attempt to 
collect the tax.
---------------------------------------------------------------------------
    \1\ The tax base does not include State or local taxes on the same 
provided that the amount of the State or local tax is separately stated 
on the customer's bill.
    \2\ Teletypewriter exchange service refers to a data system that is 
understood to be no longer in use.
---------------------------------------------------------------------------
    Local telephone service is defined as the provision of 
voice quality telephone access to a local telephone system that 
provides access to substantially all persons having telephone 
stations constituting a part of the local system. Toll 
telephone service is defined as voice quality communication for 
which (1) there is a toll charge that varies with the distance 
and elapsed transmission time of each individual call and 
payment for which occurs in the United States, or (2) a service 
(such as ``WATS'' service) which, for a flat periodic charge, 
entitles the subscriber to an unlimited number of telephone 
calls to or from an area outside the subscriber's local system 
area.
    Special rules, enacted in 1997, apply to the sale of 
``prepaid telephone cards.'' These cards are subject to tax 
when they are sold by a telecommunications carrier to a non-
carrier (rather than when communication services are provided 
to the consumer). The base to which the tax is applied is the 
face amount of the card.

Exemptions

    Present law provides for the following exemptions:
     Public coin-operated service from the tax on local 
telephone service, and to the extent that the charge is less 
than 25 cents, from the toll telephone service tax.\3\
---------------------------------------------------------------------------
    \3\ If coin-operated toll service is taxable, the tax is computed 
to the nearest multiple of five cents.
---------------------------------------------------------------------------
     Service for the collection of news by the public 
press, news ticker, or radio broadcasting services (providing a 
news service as part of or similar to that of the public 
press), from the toll telephone service tax. (Local telephone 
service provided to the press is subject to tax.)
     Private communication service for which a separate 
charge is made, from the local telephone service tax.\4\
---------------------------------------------------------------------------
    \4\ Private communication service is defined as (1) service that 
entitles the customer to exclusive or priority use of a communication 
channel or group of channels, or an intercommunication system for the 
customer's stations; (2) switching capacity, extension lines and 
stations, or other associated services provided in connection with 
services described in (1); and (3) channel mileage connecting a 
telephone outside a local service area with a central office in the 
local area.
    Unlike the other exemptions, the special treatment for private 
communication service is accomplished by means of an exclusion from the 
definition of local telephone service rather than as a stated 
exemption.
---------------------------------------------------------------------------
     Service provided to international organizations 
and the American Red Cross.
     Toll telephone service provided to members of the 
Armed Services who are stationed in combat zones.
     Certain toll telephone service to common carriers, 
telephone or telegraph companies, or radio broadcasting 
stations or networks in the conduct of these businesses.
     Installation charges (including wires, poles, 
switchboards, or other equipment).
     Telephone service provided to non-profit 
hospitals.
     Telephone service provided to State and local 
governments.
     Telephone service provided to nonprofit 
educational organizations.

      B. Overview of History of the Communications Excise Tax \5\

    The first tax on telephone service was enacted in 1898 to 
help finance the Spanish-American War. That tax was repealed in 
1902 and was not re-enacted until World War I required 
additional revenues. The World War I telephone tax was repealed 
in 1924 and was re-enacted in 1932. All of these initial 
telephone taxes applied only to toll (long distance) service. 
In 1941, with the advent of World War II, the tax was extended 
to general local service.
---------------------------------------------------------------------------
    \5\ For a more complete discussion of the history of the 
communications excise tax, see Congressional Research Service (Louis 
Alan Talley), The Federal Excise Tax on Telephone Service, A History, 
May 9, 2000 (RL30553).
---------------------------------------------------------------------------
    An excise tax on telephone service has been in effect in 
every year since 1941, despite enactment of periodic 
legislation to repeal or phase-out the tax. In the Excise Tax 
Reduction Act of 1965, Congress scheduled a phase-out, 
beginning with a reduction in the then 10-percent rate \6\ for 
both local and toll service to three percent after 1965. 
Additional reductions of one percentage point per year were 
scheduled thereafter until there would have been no tax 
effective on January 1, 1969. However, the scheduled reductions 
were repealed in 1966 (effective April 1, 1966), and the 10-
percent rate was re-instated. A delayed phase-out schedule was 
enacted in 1968, to begin in 1970. This phase-out schedule also 
was postponed, with a one-percentage point per year phase-out 
finally going into effect on January 1, 1973.
---------------------------------------------------------------------------
    \6\ At their highest, the tax rates were 15 percent on general 
local service and 25 percent on toll service costing more than 24 cents 
per message. These rates were in effect from 1944 until 1954.
---------------------------------------------------------------------------
    In 1973, the tax rate declined from 10 percent to 9 percent 
as the first step in this phase-out, which was to be completed 
beginning in 1982. However, the Omnibus Reconciliation Act of 
1980 delayed the repeal by one year (until 1983); and the 
Economic Recovery Tax Act of 1981 further delayed repeal for 
two additional years. After reaching a rate of one percent, the 
rate was increased again to three percent in 1983, and after 
being extended at that rate several times, the three percent 
rate was made permanent by the Revenue Reconciliation Act of 
1990.

                         C. Reasons for Change

    The non-social security portion of the Federal budget in 
surplus. Therefore, the Committee believes that it is 
appropriate to return some of the taxpayers' money to the 
taxpayers. The excise tax on telephone service originally was 
enacted as a wartime revenue measure targeted at a service that 
was a luxury for many households. Today telephone service is 
not a luxury, but a necessity. As such, the burden of the 
excise tax on telephone service is regressive. Moreover, 
telephone service provides the basis for much of the growth of 
the digital economy. A tax on telephone service may inhibit 
growth of this new sector of the economy.

                      D. Explanation of Provisions

    H.R. 3916, as reported, phases out the three-percent 
Federal communications excise tax, beginning with amounts paid 
with respect to bills first rendered 30 days after enactment. 
The phase-out schedule is as follows:


                          Period                              Tax rate

30 days after enactment--September 30, 2001...............    2 percent.
October 1, 2001--September 30, 2002.......................    1 percent.
October 1, 2002 and thereafter............................       No tax.


    The Committee recognizes that some local excise taxes 
mirror the tax rules, exemptions and rates of the Federal 
telecommunications excise tax to be repealed. The Committee 
urges the telecommunications industry to work cooperatively 
with state and local entities, particularly during the period 
when the Federal excise tax is being phased out.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 3916.
    The bill was ordered favorably reported by voice vote (with 
a quorum present).

                     IV. BUDGET EFFECTS OF THE BILL


              A. Committee Estimates of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the effects on the budget of the bill, H.R. 
3916, as reported.
    The bill is estimated to have the following effects on 
budget receipt for fiscal years 2000-2010:

              ESTIMATED BUDGET EFFECTS OF H.R. 3916, AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS
                                [Fiscal years 2000-2000, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
          Provision             Effective    2000      2001      2002      2003      2004      2005     2000-05
----------------------------------------------------------------------------------------------------------------
Repeal the Federal             (\1\).....      -232    -1,444    -3,039    -4,799    -5,043    -5,303    -19,860
 Communications Excise Tax.
----------------------------------------------------------------------------------------------------------------
\1\ Effective for amounts paid for telephone bills first rendered at least 30 days after the date of enactment.

Note.--Details may not add to totals due to rounding. Enactment date is assumed to be 7/1/00.

Source: Joint Committee on Taxation.

    B. Statement Regarding New Budget Authority and Tax Expenditures


Budget authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority.

Tax expenditures

    In compliance with clause 2(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no increased tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the Congressional Budget Office (``CBO''), the 
following statement by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 19, 2000.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3916, a bill to 
amend the Internal Revenue Code of 1986 to repeal the excise 
tax on telephone and other communication services.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Hester 
Grippando.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 3916--To amend the Internal Revenue Code of 1986 to repeal the 
        excise tax on telephone and other communication services

    Summary: H.R. 3916 would repeal the federal 
telecommunication excise tax. The Joint Committee on Taxation 
(JCT) estimates that the bill would reduce federal revenues by 
$232 million in fiscal year 2000, by about $20 billion over the 
2000-2005 period, and by about $51 billion over the 2000-2010 
period. Because the bill would affect receipts, pay-as-you-go 
procedures would apply.
    H.R. 3916 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3916 is shown in the following table:

----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                     -----------------------------------------------------------
                                                        2000      2001      2002      2003      2004      2005
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Estimated Revenues..................................      -232    -1,444    -3,039    -4,799    -5,043    -5,303
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: The estimate for H.R. 3916 was provided 
by JCT.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in outlays and governmental receipts that are subject 
to pay-as-you-go procedures are shown in the following table. 
For the purposes of enforcing pay-as-you-go procedures, only 
the effects in the current year, the budget year, and the 
succeeding four years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          By fiscal year, in millions of dollars--
                                  ----------------------------------------------------------------------------------------------------------------------
                                     2000      2001       2002       2003       2004       2005       2006       2007       2008       2009       2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays...............                                                      not applicable
Chanages in receipts.............     -232     -1,444     -3,039     -4,799     -5,043     -5,043     -5,578     -5,868     -6,174     -6,502     -6,852
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 3916 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act (UMRA) and would 
not affect the budgets of state, local, or tribal governments.
    Estimate prepared by: Federal costs: Hester Grippando.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was the result of the Committee's 
oversight review concerning the Federal communications excise 
tax that the Committee concluded that it is appropriate and 
timely to enact the provisions included in the bill as 
reported.

    B. Summary of Findings and Recommendations of the Committee on 
                           Government Reform

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that no 
oversight findings or recommendations have been submitted to 
this Committee by the Committee on Government Reform with 
respect to the provisions contained in the bill.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of rule XIII of the Rules of 
the House of Representatives (relating to Constitutional 
Authority), the Committee states that the Committee's action in 
reporting this bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have Power To lay 
and collect Taxes, Duties, Imposts and Excises. * * *).

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill as reported does 
not contain any Federal mandates on the private sector or any 
Federal mandates intergovernmental mandates on State, local, or 
tribal governments.

                E. Applicability of House Rule XXI 5(B)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part that ``No bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase shall be considered as passed or agreed to unless 
determined by a vote of not less than three-fifths of the 
Members.'' The Committee has carefully reviewed the provisions 
of the bill, and states that the provisions of the bill do not 
involve any Federal income tax rate increase within the meaning 
of the rule.

                       F. Tax Complexity Analysis

    The following tax complexity analysis is provided pursuant 
to section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998, which requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service (``IRS'') and the Treasury Department) to 
provide a complexity analysis of tax legislation reported by 
the House Committee on Ways and Means, the Senate Committee on 
Finance, or a Conference Report containing tax provisions. The 
complexity analysis is required to report on the complexity and 
administrative issues raised by provisions that directly or 
indirectly amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation, a summary description of the provision 
is provided, along with an estimate of the number and type of 
affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS regarding each of the 
provisions included in the complexity analysis, including a 
discussion of the likely effect on IRS forms and any expected 
impact on the IRS.

Summary description of the provision

    The bill repeals the three-percent Federal communications 
excise tax, according to a phase-out schedule beginning with 
amounts due with respect to bills first rendered 30 days after 
enactment. The phase-out schedule is as follows: 2 percent (30 
days after enactment-September 30, 2001); 1 percent (October 1, 
2001-September 30, 2002); no tax (beginning October 1, 2002).
    The communications excise tax is collected by 
telecommunications companies as part of their regular bills for 
service to consumers. Consumers are liable for payment of the 
tax, however.

Number of affected taxpayers

    It is estimated that the provision will affect 
approximately 93 million households and approximately 23 
million business service customers. There may be some overlap 
in these categories because some businesses are located in 
private residences.

Discussion

    Because the present communications excise tax is collected 
as part of telecommunications service provider bills, consumers 
(individuals and businesses) are not required to keep separate 
records of the tax under present law. Repeal of the tax will 
not result in any additional recordkeeping requirements for 
consumers. Repeal of the tax will eliminate current 
recordkeeping and tax payment requirements imposed on 
telecommunications service providers after the interim phase-
out period. During the interim phase-out period, however, those 
service providers will have to modify their billing systems to 
accommodate the declining tax rates provided by the bill.
    Repeal of the tax will eliminate any potential for disputes 
related to the scope of the tax between the IRS and either 
consumers or telecommunications service providers. No 
consumers' tax preparation costs will be affected because, as 
described above, those individuals and businesses do not file 
communications tax returns under present law. Once the tax is 
phased out, however, service providers will be relieved of the 
responsibility of collecting and depositing the tax and filing 
quarterly tax returns.

                        Department of the Treasury,
                                  Internal Revenue Service,
                                      Washington, DC, May 18, 2000.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washington, DC.
    Dear Ms. Paull: Following are the Internal Revenue 
Service's (IRS) comments on the House Committee on Ways and 
Means markup of H.R. 3916 (Repeal of the Federal Communications 
Excise Tax), which you identified for complexity analysis in 
your letter of May 18, 2000. Due to the short turnaround time, 
our comments are provisional and subject to change upon a more 
complete and in-depth analysis of the provisions.
    Provision: The three-percent Federal communications excise 
tax would be phased out, beginning with amounts paid with 
respect to bills first rendered 30 days after the date of 
enactment. The phase-out schedule is as follows:


                          Period                              Tax Rate

30 days after enactment--September 30, 2001...............    2 percent.
October 1, 2001--September 30, 2002.......................    1 percent.
October 1, 2002 and thereafter............................       No tax.


    IRS comments: During the phaseout, the instructions for 
Form 720, Quarterly Federal Excise Tax Return, will need to be 
revised to show the reduced rates. The final phaseout will 
require deletion of all lines and instructions relating to the 
tax. Since service providers will continue to collect tax on 
their pre-October 1, 2002 billings long after that date, Form 
720 will provide for the tax through at least the 4th quarter 
of 2003. The bill will reduce the reporting burden for 
approximately 4,700 taxpayers who currently report the tax. 
Minimal programming changes will be required to reflect 
elimination of the tax. No major regulatory guidance is 
anticipated.
            Sincerely,
                                               Charles O. Rossotti.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                       INTERNAL REVENUE SERVICE

           *       *       *       *       *       *       *



                 Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


                  CHAPTER 33--FACILITIES AND SERVICES

           *       *       *       *       *       *       *


                      Subchapter B--Communications

           *       *       *       *       *       *       *


SEC. 4251. IMPOSITION OF TAX.

  (a) * * *
  (b) Definitions.--For purposes of subsection (a)--
          (1) * * *
          [(2) Applicable percentage.--The term ``applicable 
        percentage'' means 3 percent.]
          (2) Applicable percentage.--The term ``applicable 
        percentage'' means--
                  (A) 2 percent with respect to amounts paid 
                pursuant to bills first rendered on or after 
                the 30th day after the date of the enactment of 
                this subparagraph and before October 1, 2001, 
                and
                  (B) 1 percent with respect to amounts paid 
                pursuant to bills first rendered after 
                September 30, 2001, and before October 1, 2002.

           *       *       *       *       *       *       *


    THE FOLLOWING AMENDMENTS ARE EFFECTIVE AFTER SEPTEMBER 30, 2002

                  CHAPTER 33--FACILITIES AND SERVICES

        [Subchapter B. Communications.]
     * * * * * * *

                     [Subchapter B--Communications

        [Sec. 4251. Imposition of tax.
        [Sec. 4252. Definitions.
        [Sec. 4253. Exemptions.
        [Sec. 4354. Computation of tax.

[SEC. 4251. IMPOSITION OF TAX.

  [(a) Tax Imposed.--
          [(1) In general.--There is hereby imposed on amounts 
        paid for communications services a tax equal to the 
        applicable percentage of amounts so paid.
          [(2) Payment of tax.--The tax imposed by this section 
        shall be paid by the person paying for such services.
  [(b) Definitions.--For purposes of subsection (a)--
          [(1) Communications services.--The term 
        ``communications services'' means--
                  [(A) local telephone service;
                  [(B) toll telephone service; and
                  [(C) teletypewriter exchange service.
          [(2) Applicable percentage.--The term ``applicable 
        percentage'' means 3 percent.
  [(c) Special Rule.--For purposes of subsections (a) and (b), 
in the case of communications services rendered before November 
1 of a calendar year for which a bill has not been rendered 
before the close of such year, a bill shall be treated as 
having been first rendered on December 31 of such year.
  [(d) Treatment of Prepaid Telephone Cards.--
          [(1) In general.--For purposes of this subchapter, in 
        the case of communications services acquired by means 
        of a prepaid telephone card--
                  [(A) the face amount of such card shall be 
                treated as the amount paid for such 
                communications services, and
                  [(B) that amount shall be treated as paid 
                when the card is transferred by any 
                telecommunications carrier to any person who is 
                not such a carrier.
          [(2) Determination of face amount in absence of 
        specified dollar amount.--In the case of any prepaid 
        telephone card which entitles the user other than to a 
        specified dollar amount of use, the face amount shall 
        be determined under regulations prescribed by the 
        Secretary.
          [(3) Prepaid telephone card.--For purposes of this 
        subsection, the term ``prepaid telephone card'' means 
        any card or any other similar arrangement which permits 
        its holder to obtain communications services and pay 
        for such services in advance.

[SEC. 4252. DEFINITIONS.

  [(a) Local Telephone Service.--For purposes of this 
subchapter, the term ``local telephone service'' means--
          [(1) the access to a local telephone system, and the 
        privilege of telephonic quality communication with 
        substantially all persons having telephone or radio 
        telephone stations constituting a part of such local 
        telephone system, and
          [(2) any facility or service provided in connection 
        with a service described in paragraph (1).
The term ``local telephone service'' does not include any 
service which is a ``toll telephone service'' or a ``private 
communication service'' as defined in subsections (b) and (d).
  [(b) Toll Telephone Service.--For purposes of this 
subchapter, the term ``toll telephone service'' means--
          [(1) a telephonic quality communication for which (A) 
        there is a toll charge which varies in amount with the 
        distance and elapsed transmission time of each 
        individual communication and (B) the charge is paid 
        within the United States, and
          [(2) a service which entitles the subscriber, upon 
        payment of a periodic charge (determined as a flat 
        amount or upon the basis of total elapsed transmission 
        time), to the privilege of an unlimited number of 
        telephonic communications to or from all or a 
        substantial portion of the persons having telephone or 
        radio telephone stations in a specified area which is 
        outside the local telephone system area in which the 
        station provided with this service is located.
  [(c) Teletypewriter Exchange Service.--For purposes of this 
subchapter, the term ``teletypewriter exchange service'' means 
the access from a teletypewriter or other data station to the 
teletypewriter exchange system of which such station is a part, 
and the privilege of intercommunication by such station with 
substantially all persons having teletypewriter or other data 
stations constituting a part of the same teletypewriter 
exchange system, to which the subscriber is entitled upon 
payment of a charge or charges (whether such charge or charges 
are determined as a flat periodic amount, on the basis of 
distance and elapsed transmission time, or in some other 
manner). The term ``teletypewriter exchange service'' does not 
include any service which is ``local telephone service'' as 
defined in subsection (a).
  [(d) Private Communication Service.--For purposes of this 
subchapter, the term ``private communication service'' means--
          [(1) the communication service furnished to a 
        subscriber which entitles the subscriber--
                  [(A) to exclusive or priority use of any 
                communication channel or groups of channels, or
                  [(B) to the use of an intercommunication 
                system for the subscriber's stations,
        regardless of whether such channel, groups of channels, 
        or intercommunication system may be connected through 
        switching with a service described in subsection (a), 
        (b), or (c),
          [(2) switching capacity, extension lines and 
        stations, or other associated services which are 
        provided in connection with, and are necessary or 
        unique to the use of, channels or systems described in 
        paragraph (1), and
          [(3) the channel mileage which connects a telephone 
        station located outside a local telephone system area 
        with a central office in such local telephone system,
except that such term does not include any communication 
service unless a separate charge is made for such service.

[SEC. 4253. EXEMPTIONS.

  [(a) Certain Coin-Operated Service.--Services paid for by 
inserting coins in coin-operated telephones available to the 
public shall not be subject to the tax imposed by section 4251 
with respect to local telephone service, or with respect to 
toll telephone service if the charge for such toll telephone 
service is less than 25 cents; except that where such coin-
operated telephone service is furnished for a guaranteed 
amount, the amounts paid under such guarantee plus any fixed 
monthly or other periodic charge shall be subject to the tax.
  [(b) News Services.--No tax shall be imposed under section 
4251, except with respect to local telephone service, on any 
payment received from any person for services used in the 
collection of news for the public press, or a news ticker 
service furnishing a general news service similar to that of 
the public press, or radio broadcasting, or in the 
dissemination of news through the public press, or a news 
ticker service furnishing a general news service similar to 
that of the public press, or by means of radio broadcasting, if 
the charge for such service is billed in writing to such 
person.
  [(c) International, Etc., Organizations.--No tax shall be 
imposed under section 4251 on any payment received for services 
furnished to an international organization, or to the American 
National Red Cross.
  [(d) Servicemen in Combat Zone.--No tax shall be imposed 
under section 4251 on any payment received for any toll 
telephone service which originates within a combat zone, as 
defined in section 112, from a member of the Armed Forces of 
the United States performing service in such combat zone, as 
determined under such section, provided a certificate, setting 
forth such facts as the Secretary may by regulations prescribe, 
is furnished to the person receiving such payment.
  [(e) Items Otherwise Taxed.--Only one payment of tax under 
section 4251 shall be required with respect to the tax on any 
service, notwithstanding the lines or stations of one or more 
persons are used in furnishing such service.
  [(f) Common Carriers and Communications Companies.--No tax 
shall be imposed under section 4251 on the amount paid for any 
toll telephone service described in section 4252(b)(2) to the 
extent that the amount so paid is for use by a common carrier, 
telephone or telegraph company, or radio broadcasting station 
or network in the conduct of its business as such.
  [(g) Installation Charges.--No tax shall be imposed under 
section 4251 on so much of any amount paid for the installation 
of any instrument, wire, pole, switchboard, apparatus, or 
equipment as is properly attributable to such installation.
  [(h) Nonprofit Hospitals.--No tax shall be imposed under 
section 4251 on any amount paid by a nonprofit hospital for 
services furnished to such organization. For purposes of this 
subsection, the term ``nonprofit hospital'' means a hospital 
referred to in section 170(b)(1)(A)(iii) which is exempt from 
income tax under section 501(a).
  [(i) State and Local Governmental Exemption.--Under 
regulations prescribed by the Secretary, no tax shall be 
imposed under section 4251 upon any payment received for 
services or facilities furnished to the government of any 
State, or any political subdivision thereof, or the District of 
Columbia.
  [(j) Exemption for Nonprofit Educational Organizations.--
Under regulations prescribed by the Secretary, no tax shall be 
imposed under section 4251 on any amount paid by a nonprofit 
educational organization for services or facilities furnished 
to such organization. For purposes of this subsection, the term 
``nonprofit educational organization'' means an educational 
organization described in section 170(b)(1)(A)(ii) which is 
exempt from income tax under section 501(a). The term also 
includes a school operated as an activity of an organization 
described in section 501(c)(3) which is exempt from income tax 
under section 501(a), if such school normally maintains a 
regular faculty and curriculum and normally has a regularly 
enrolled body of pupils or students in attendance at the place 
where its educational activities are regularly carried on.
  [(k) Filing of Exemption Certificates.--
          [(1) In general.--In order to claim an exemption 
        under subsection (c), (h), (i), or (j), a person shall 
        provide to the provider of communications services a 
        statement (in such form and manner as the Secretary may 
        provide) certifying that such person is entitled to 
        such exemption.
          [(2) Duration of certificate.--Any statement provided 
        under paragraph (1) shall remain in effect until--
                  [(A) the provider of communications services 
                has actual knowledge that the information 
                provided in such statement is false, or
                  [(B) such provider is notified by the 
                Secretary that the provider of the statement is 
                no longer entitled to an exemption described in 
                paragraph (1).
        If any information provided in such statement is no 
        longer accurate, the person providing such statement 
        shall inform the provider of communications services 
        within 30 days of any change of information.

[SEC. 4254. COMPUTATION OF TAX.

  [(a) General Rule.--If a bill is rendered the taxpayer for 
local telephone service or toll telephone service--
          [(1) the amount on which the tax with respect to such 
        services shall be based shall be the sum of all charges 
        for such services included in the bill; except that
          [(2) if the person who renders the bill groups 
        individual items for purposes of rendering the bill and 
        computing the tax, then (A) the amount on which the tax 
        with respect to each such group shall be based shall be 
        the sum of all items within that group, and
                  [(B) the tax on the remaining items not 
                included in any such group shall be based on 
                the charge for each item separately.
  [(b) Where Payment is Made for Toll Telephone Service in 
Coin-Operated Telephones.--If the tax imposed by section 4251 
with respect to toll telephone service is paid by inserting 
coins in coin-operated telephones, tax shall be computed to the 
nearest multiple of 5 cents, except that, where the tax is 
midway between multiples of 5 cents, the next higher multiple 
shall apply.
  [(c) Certain State and Local Taxes Not Included.--For 
purposes of this subchapter, in determining the amounts paid 
for communications services, there shall not be included the 
amount of any State or local tax imposed on the furnishing or 
sale of such services, if the amount of such tax is separately 
stated in the bill.]

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Subchapter E--Special Provisions Applicable to Services and Facilities 
                                Taxes

           *       *       *       *       *       *       *


SEC. 4293. EXEMPTION FOR UNITED STATES AND POSSESSIONS.

  The Secretary of the Treasury may authorize exemption from 
the taxes imposed by subchapter A of chapter 31, section 4041, 
section 4051, [chapter 32 (other than the taxes imposed by 
sections 4064 and 4121) and subchapter B of chapter 33,] and 
chapter 32 (other than the taxes imposed by sections 4064 and 
4121), as to any particular article, or service or class of 
articles or services, to be purchased for the exclusive use of 
the United States, if he determines that the imposition of such 
taxes with respect to such articles or services, or class of 
articles or services will cause substantial burden or expense 
which can be avoided by granting tax exemption and that full 
benefit of such exemption, if granted, will accrue to the 
United States.

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              Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


                        CHAPTER 64--COLLECTION

           *       *       *       *       *       *       *


                Subchapter A--General Provisions

           *       *       *       *       *       *       *


SEC. 6302. MODE OR TIME OF COLLECTION.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Time for Deposit of Taxes on [Communications Services 
and] Airline Tickets.--
          (1) In general.--Except as provided in paragraph (2), 
        if, under regulations prescribed by the Secretary, a 
        person is required to make deposits of any tax imposed 
        by [section 4251 or] subsection (a) or (b) of section 
        4261 with respect to amounts considered collected by 
        such person during any semimonthly period, such deposit 
        shall be made not later than the 3rd day (not including 
        Saturdays, Sundays, or legal holidays) after the close 
        of the 1st week of the 2nd semimonthly period following 
        the period to which such amounts relate.
          (2) Special rule for tax due in september.--
                  (A) Amounts considered collected.--In the 
                case of a person required to make deposits of 
                the tax [imposed by--
                          [(i) section 4251, or
                          [(ii) effective on January 1, 1997, 
                        section 4261 or 4271, with respect to] 
                        imposed by section 4261 or 4271 with 
                        respect to amounts considered collected 
                        by such person during any semimonthly 
                        period, the amount of such tax included 
                        in [bills rendered or] tickets sold 
                        during the period beginning on 
                        September 1 and ending on September 11 
                        shall be deposited not later than 
                        September 29.

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              CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


              Subchapter B--Rules for Special Application

           *       *       *       *       *       *       *


SEC. 6415. CREDITS OR REFUNDS TO PERSONS WHO COLLECTED CERTAIN TAXES.

  (a) Allowance of Credits or Refunds.--Credit or refund of any 
overpayment of tax imposed by section [4251, 4261, or 4271] 
4261 or 4271 may be allowed to the person who collected the tax 
and paid it to the Secretary if such person establishes, under 
such regulations as the Secretary may prescribe, that he has 
repaid the amount of such tax to the person from whom he 
collected it, or obtains the consent of such person to the 
allowance of such credit or refund.
  (b) Credit on Returns.--Any person entitled to a refund of 
tax imposed by section [4251, 4261, or 4271] 4261 or 4271 paid, 
or collected and paid, to the Secretary by him may, instead of 
filing a claim for refund, take credit therefor against taxes 
imposed by such section due upon any subsequent return.
  (c) Refund of Overcollections.--In case any person required 
under section [4251, 4261, or 4271] 4261 or 4271 to collect any 
tax shall make an overcollection of such tax, such person 
shall, upon proper application, refund such overcollection to 
the person entitled thereto.
  (d) Refund of Taxable Payment.--Any person making a refund of 
any payment on which tax imposed by section [4251, 4261, or 
4271] 4261 or 4271 has been collected may repay therewith the 
amount of tax collected on such payment.

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                       CHAPTER 80--GENERAL RULES

           *       *       *       *       *       *       *


       Subchapter C--Provisions Effecting More Than One Subtitle

           *       *       *       *       *       *       *


SEC. 7871. INDIAN TRIBAL GOVERNMENTS TREATED AS STATES FOR CERTAIN 
                    PURPOSES.

  (a) General Rule.--An Indian tribal government shall be 
treated as a State--
          (1) * * *
          (2) subject to subsection (b), for purposes of any 
        exemption from, credit or refund of, or payment with 
        respect to, an excise tax imposed by--
                  (A) chapter 31 (relating to tax on special 
                fuels),
                  (B) chapter 32 (relating to manufacturers 
                excise taxes), or
                  [(C) subchapter B of chapter 33 (relating to 
                communications excise tax), or]
                  [(D)] (C) subchapter D of chapter 36 
                (relating to tax on use of certain highway 
                vehicles);

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