House Report 106-631 - REPEAL OF FEDERAL COMMUNICATIONS EXCISE TAX

[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

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.]

* * * * * * *

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.

* * * * * * *

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.

* * * * * * *

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.

* * * * * * *

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);

* * * * * * *