[Senate Report 106-326]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 660
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-326
_______________________________________________________________________

                                     


                 MOBILE TELECOMMUNICATIONS SOURCING ACT

                               __________

                              R E P O R T

                                 OF THE

           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                                    on

                                S. 1755



                                     

                 June 30, 2000.--Ordered to be printed

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
79-010                     WASHINGTON : 2000

       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       one hundred sixth congress

                             second session

                     JOHN McCAIN, Arizona, Chairman

TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi              Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
OLYMPIA SNOWE, Maine                 JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan            RON WYDEN, Oregon
SAM BROWNBACK, Kansas                MAX CLELAND, Georgia

                       Mark Buse, Staff Director

                   Ann H. Choiniere, General Counsel

               Kevin D. Kayes, Democratic Staff Director

                  Moses Boyd, Democratic Chief Counsel

                Gregg Elias, Democratic General Counsel

                                  (ii)
                                                       Calendar No. 660
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-326

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



 
                 MOBILE TELECOMMUNICATIONS SOURCING ACT

                                _______
                                

                 June 30, 2000.--Ordered to be printed

                                _______
                                

       Mr. McCain, from the Committee on Commerce, Science, and 
                Transportation, submitted the following

                              R E P O R T

                         [To accompany S. 1755]

  The Committee on Commerce, Science, and Transportation, to 
which was referred the bill (S. 1755) to amend the 
Communications Act of 1934 to regulate interstate commerce in 
the use of mobile telephones, having considered the same, 
reports favorably thereon with an amendment (in the nature of a 
substitute) and recommends that the bill (as amended) do pass.

                          Purpose of the Bill

  The purpose of the bill is to amend the Communications Act of 
1934 to provide for a uniform national rule for determining the 
location from which mobile telecommunications services are 
provided in order to properly apply state and local taxes, 
charges, and fees.

                          Background and Needs

    Many states and localities impose transactional taxes, such 
as sales and use taxes, on the provision of mobile 
telecommunications services. A transactional tax for these 
purposes is a tax that is measured by the amounts charged to 
the customer for the service. Such taxes necessarily require a 
determination of where the services are used, so that the 
correct state and local tax rates and rules can be applied.
  There are two primary reasons that a uniform rule for 
determining the situs of mobile telecommunications is needed. 
First, the mobile nature of these services vastly complicates 
the task of determining the location of a particular 
transaction for tax purposes. Unlike fixed-location 
telecommunications services, there is no single address at 
which the customer's mobile telecommunications equipment is 
located. Moreover, a customer may travel through multiple 
taxing jurisdictions in the course of a single telephone call. 
Consequently, a variety of different methodologies are used by 
the industry and by taxing jurisdictions to determine the situs 
of the transaction for tax purposes, such as originating cell 
site, billing address, originating switch location and others. 
The use of different methodologies results in inconsistent 
application of state and local taxes and, in many cases, more 
than one taxing jurisdiction claiming the right to tax the same 
transaction.
  The other reason that a uniform sourcing method is needed 
stems from the current trend in the way consumers purchase 
mobile telecommunications services. Until recently, most calls 
placed or received by a mobile customer while outside of the 
home service provider's local calling area were billed to the 
customer at a certain rate per minute depending on where the 
call was placed or received. Now, however, a large and 
increasing number of customers are subscribing to mobile 
service pricing plans that allow the customer to place or 
receive calls anywhere for a set price per month. The set price 
applies to all calls up to a certain number of minutes of use, 
with each additional minute being billed at a per-minute rate. 
These plans are often referred to as bucket of minutes or 
bundled billing plans.
  The new bucket of minutes billing plans substantially 
increase the difficulty, complexity and expense of correctly 
applying state and local taxes to mobile telecommunications 
services under the methodologies in use today. Since the 
service is billed at a set price per month, unless the customer 
uses exactly the number of minutes specified in the plan each 
month (which is highly unlikely), it is virtually impossible to 
determine the portion of that price charged for individual 
calls, each of which may be subject to tax by a different 
jurisdiction. Consequently, absent some allocation of the total 
monthly charge over the number of minutes actually used during 
the month, it is impossible to determine the amount of revenues 
to which each of the various state and local transaction taxes 
should be applied. In order to accommodate these bucket of 
minutes plans, carriers must implement costly enhancements to 
their billing systems. Even after implementing such 
enhancements, however, there is no guarantee that any of the 
various state and local taxing jurisdictions will accept the 
resulting allocations, and carriers will continue to face 
significant audit exposure.
  Another shortcoming of the current system for taxing mobile 
telecommunications is the difficulty and inaccuracy inherent in 
determining the proper taxing jurisdiction in which a certain 
address is located. Once the situs of the call for tax purposes 
is known, it is still necessary to determine the correct 
jurisdiction or jurisdictions in which that address is located. 
This determination is particularly difficult with respect to 
local taxes for a number of reasons. First, local 
jurisdictional boundaries frequently change as the result of 
annexations and incorporations of developments into 
municipalities with taxing authority. In addition, 
jurisdictional boundaries do not completely correspond to U.S. 
five-digit postal zip codes.
  The current system of taxing mobile telecommunications is 
costly for companies to administer, costly for state and local 
governments to monitor, and confusing for consumers to 
understand. For more than three years, representatives of the 
mobile telecommunications industry and state and local 
government organizations engaged in negotiations to develop 
compromise legislative language for a national framework for 
the taxation of mobile telecommunications services. The 
agreement crafted by these parties represented a practical 
solution to many of the problems inherent in the current system 
of taxing mobile communications services.

                          Legislative History

  S. 1755, the Mobile Telecommunications Sourcing Act of 1999, 
was introduced by Senator Brownback and Senator Dorgan on 
October 20, 1999, and referred to the Committee on Commerce, 
Science, and Transportation. A full Committee hearing was held 
on the bill on March 7, 2000. By a unanimous vote on April 13, 
2000, the Committee ordered S. 1755 reported to the Senate with 
an amendment in the nature of a substitute.

                      Summary of Major Provisions

  This bill establishes one methodology for determining the 
location of a mobile telecommunications service for the 
purposes of assigning which state and local taxing authorities 
may appropriately impose a tax, charge, or fee (tax) on the 
mobile telecommunications service. The bill determines the 
location of mobile telecommunications services for certain 
state and local tax purposes but does not itself impose any 
tax. The bill specifies which states and localities may apply 
their taxes to wireless telecommunications services, based on 
the location of the customer's place of primary use. The bill 
permits transactional taxes to be imposed only by the taxing 
jurisdiction(s) whose territorial limits encompass the 
customer's place of primary use. The bill prohibits any other 
state or local jurisdiction from imposing transaction taxes on 
that customer's mobile service.
  For purposes of applying state and local transaction taxes, 
the bill eliminates the need to determine the precise location 
of each mobile telecommunications transmission, or call. In 
place of locating each call, the bill provides that all of a 
customer's mobile telecommunications services are deemed to be 
provided by the customer's home service provider and authorizes 
only the taxing jurisdictions whose territorial limits 
encompass the customer's place of primary use to impose 
transaction taxes on the charges for such services. Place of 
primary use is defined in the bill to mean either the street 
address of the customer's residence or primary business 
location, which is within the licensed service area of the home 
service provider. By limiting a customer's place of primary use 
to one of these two locations, the bill minimizes the 
opportunity for tax planning that could occur through the 
selection of a tax situs solely for its tax climate. Home 
service provider is defined in the bill to mean the facilities-
based carrier or reseller with which the customer contracts for 
mobile telecommunications services.
  A home service provider is responsible for obtaining from the 
customer and maintaining updated records on the customer's 
place of primary use. If the home service provider' relies in 
good faith on the residential or business street address 
supplied to it by the customer, the home service provider is 
not liable for any additionaltaxes based on a different 
determination of the place of primary use. With respect to customers 
having a service agreement in effect on the effective date of the bill, 
the home service provider may treat the existing address used for tax 
purposes as the place of primary use for the remaining term of the 
service agreement, excluding any extensions or renewals. A taxing 
jurisdiction, or the state on behalf of a taxing jurisdiction, however, 
may determine that an address used as the customer's place of primary 
use is not representative of the customer's residence or primary 
business location, and propose to change the customer's place of 
primary use, on a prospective basis. A proposed change of this nature 
will not become effective until (1) all affected taxing jurisdictions 
within the state consent to the change and (2) the customer is given 
the opportunity to demonstrate that the address given by the customer 
is the correct place of primary use.
  The bill provides that a state or a designated data base 
provider may make available to mobile service providers an 
electronic database that designates for each street address in 
the state the applicable taxing jurisdiction(s). A designated 
database provider may be a corporation, association, or other 
entity that represents all of the political subdivisions of a 
state and is sanctioned by the municipal and county 
associations or leagues of that state, which is responsible for 
providing the electronic database if the database is not 
provided by the state.
  The bill requires that the database be provided in a format 
approved by the American National Standards Institute's 
Accredited Standards Committee X12 and that it provide an 
appropriate code identifying each taxing jurisdiction and level 
of taxing jurisdiction located within a state. In recognition 
of the fact that many service providers have operations in 
multiple states, the bill also directs that the numeric codes 
utilized in the databases contain the same number of numeric 
digits, and that each digit or combination of digits refer to 
the same level of taxing jurisdiction throughout the United 
States. For example, the first two digits might refer to the 
state, while the next three might refer to the counties within 
that state, and so on, until all levels of jurisdiction are 
accommodated. To assist in the development of consistent 
coding, the bill requires that the database use a format 
similar to FIPS 55-3, or some other appropriate format approved 
by the Federation of Tax Administrators and the Multistate Tax 
Commission.
  The bill provides that the state or the designated database 
provider must furnish notice of the availability of the 
database, as well as any subsequent revisions thereof, by 
publication in the manner normally employed for publication of 
informational tax, charge or fee notices to taxpayers in the 
particular state. The home service provider is required by the 
bill to reflect changes that have been made to the database 
during a calendar quarter no later than 30 days after the end 
of such calendar quarter for each state that publishes notice 
of the update in the prescribed manner. If the mobile service 
provider uses the database and timely reflects changes thereto, 
the provider will not be held liable for taxes that were not 
paid solely as a result of errors or omissions in the database.
  Alternatively, if neither a state nor designated database 
provider elects to provide the database described above, the 
home service provider may use an enhanced zip code matching 
system to determine the applicable taxing jurisdiction(s). An 
enhanced zip code is defined as a U.S. Postal zip code of nine 
or more digits. If the home service provider uses the enhanced 
zip code system and exercises due diligence in assigning the 
enhanced zip codes to the appropriate taxing jurisdictions, the 
provider will not be liable for additional taxes that might 
otherwise be due as the result of an incorrect assignment of a 
street address to the correct taxing jurisdiction. The home 
service provider is presumed to have exercised due diligence if 
the home service provider demonstrates that it has expended 
reasonable resources to implement and maintain an appropriately 
detailed database of street address assignments to taxing 
jurisdictions, implemented and maintained reasonable internal 
controls to promptly correct misassignments of street 
addresses, and used all reasonably obtainable and useable data 
pertaining to changes in jurisdictional boundaries that would 
materially impact the accuracy of the database.
  A state or local jurisdiction may determine that the 
assignment of a taxing jurisdiction by the home service 
provider does not reflect the correct taxing jurisdiction. If 
such a determination is made, the home service provider may be 
required to change the assignment on a prospective basis. 
Before any change in assignment is finalized, the consent of 
all affected taxing jurisdictions must be obtained, and the 
home service provider must be given an opportunity to 
demonstrate that the original assignment was correct, in 
accordance with applicable administrative procedures.
  The Committee recognizes that the sourcing rules contained in 
the bill are appropriate only for taxes based on the 
transaction between a mobile telecommunications service 
provider and its customer, and that such rules are not 
appropriate for determining the situs of business receipts, 
expenditures or property for purposes of other types of taxes, 
such as income, franchise and other business activity taxes. 
Accordingly, the bill expressly provides that its sourcing 
methodology is applicable only to transaction taxes, i.e., 
taxes, charges or fees levied as a fixed amount per customer or 
measured by the amounts charged to customers of mobile 
telecommunications services. The bill further provides that it 
does not apply to income, capital stock, property and other 
taxes not based on the transaction between the home service 
provider and the customer.
  The bill provides that if the final judgment of a court 
substantially limits or impairs the essential elements of the 
bill on federal statutory or constitutional grounds, all of the 
provisions of the bill shall be null and void and of no effect. 
This nonseverability is a critical feature of the bill, because 
the provisions of the bill supersede and replace the existing 
state tax system with respect to the application of transaction 
taxes to mobile telecommunications services. The 
nonseverability provision provides a mechanism for 
automatically returning to the status quo ante in the event 
that the tax system authorized by the bill is overturned by the 
courts.

                        Constitutional Analysis

  Under the Commerce Clause of the Constitution, Congress has 
the ability ``to regulate Commerce * * * among the several 
States.'' U.S. Const. art. I, section 8, cl. 3. In the absence 
of federal legislation, the U.S. Supreme Court has interpreted 
the Commerce Clause to mean that states may levy a tax on 
interstate commerce as long as the tax (1) is applied to an 
activity having a substantial nexus with the state, (2) the tax 
is fairly apportioned, (3) the tax does not discriminate 
against interstate commerce, and (4) the tax is fairly related 
to the services provided by the taxing state. Complete Auto 
Transit, Inc. v. Brady, 430 U.S. 274 (1977). In Goldberg v. 
Sweet, 488 U.S. 252, 263 (1989), the U.S. Supreme Court 
explained which states had jurisdiction to apply a 
transactional tax to interstate telecommunications. 
Jurisdiction rested with the state or states from which the 
telecommunications originated or in which the 
telecommunications terminated, provided that the state also was 
the state of the service address (address of the equipment to 
which the telecommunications was charged) or the billing 
address.
  The place of primary use rule provided in the bill does not 
follow the taxing model upheld in Goldberg v. Sweet. The 
Committee recognizes, however, that Congress's power under the 
Commerce Clause includes the ability to regulate taxation and 
that Congress may alter or abolish judicially created rules 
regarding the imposition of taxes by states. See Northwestern 
Portland Cement Co. v. Minnesota, 358 U.S. 450 (1959); Gwin, 
White & Prince, Inc. v. Henneford, 305 U.S. 434 (1939).
  The Committee also believes that the taxing model authorized 
by the bill satisfies the Due Process Clause of the 
Constitution. In the context of transaction taxes subject to 
the provisions of the bill, the Due Process Clause essentially 
requires only that there be some minimum connection between the 
taxing state and the persons and transactions sought to be 
taxed. The Committee believes that the customer's intentional 
use of the service primarily in a particular state (i.e., the 
place of primary use) should be substantially more than the 
minimum connection between that state and the customer 
necessary to satisfy the Due Process Clause. Similarly, the 
home service provider's agreement with the customer, which 
reflects the purposeful direction of its economic activity and 
maintenance of a market in that state, also creates more than 
the minimum connection between the state and the home service 
provider necessary to satisfy the Due Process Clause.
  Finally, the bill does not require state or local governments 
to take any action in furtherance of a federal program in 
violation of the Tenth Amendment. The Committee believes that 
the provisions of this bill are more appropriately 
characterized as an authorization by Congress for the states to 
tax wireless communications services in a way that they 
otherwise could not absent the bill, rather than a mandate that 
the states adopt a particular regulatory scheme. Cf. United 
States v. Printz, 521 U.S. 898 (1997); New York v. United 
States, 505 U.S. 144 (1992).
  The Committee believes that the bill is a constitutionally 
sound and practical approach to burdensome and otherwise 
insoluble problems of multi-jurisdictional commerce.

                            Estimated Costs

  In accordance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and section 403 of the 
Congressional BudgetAct of 1974, the Committee provides the 
following cost estimate, prepared by the Congressional Budget Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 9, 2000.
Hon. John McCain,
Chairman, Committee on Commerce, Science, and Transportation,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1755, the Mobile 
Telecommunications Sourcing Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark Hadley 
(for federal costs), Hester Grippando (for revenues), and 
Shelley Finlayson (for the state and local impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 1755--Mobile Telecommunications Sourcing Act

    Summary: Two years after enactment, S. 1755 would prohibit 
state and local governments from taxing mobile 
telecommunications calls unless a customer's place of primary 
telephone use is within the taxing jurisdiction of the state or 
local government. The bill would encourage states to provide 
mobile telephone companies with a database that shows which 
addresses fall within which taxing jurisdictions. Mobile 
telephone companies would be held harmless for any mistakes in 
taxes collected because of errors in the database, or from 
errors they might make before a state provides such a database.
    Certain charges imposed on telecommunications services 
either by states or the federal government under the 
Telecommunications Act of 1996 to support universal service are 
recorded in the federal budget. (Universal Service is a program 
intended to promote the availability of telecommunications 
services at affordable rates.) Because S. 1755 could affect 
direct spending and receipts, pay-as-you-go procedures would 
apply, but CBO estimates that any such effects would be 
negligible.
    S. 1755 contains an intergovernmental mandate as defined in 
the Unfunded Mandates Reform Act (UMRA), because it would 
preempt state and local government laws by prohibiting 
jurisdictions from taxing mobile telecommunication services 
unless the jurisdictions contain a customer's place of primary 
use. While data are limited, CBO estimates the mandate would 
not impose significant net costs on state or local governments 
and would not exceed the threshold established in UMRA ($55 
million in 2000, adjusted annually for inflation). The 
legislation does not contain any new private-sector mandates as 
defined by UMRA.
    Estimated cost to the Federal Government: Under the 
Universal Service Fund established by the Telecommunications 
Act of 1996, the Federal Communications Commission (FCC) seeks 
to provide universal access to telecommunications services 
through various charges to some telephone companies and 
payments to others. The 1996 act also permits states to 
establish additional collections and payments to preserve and 
advance universal service, so long as these mechanisms are not 
inconsistent with federal law.
    The Universal Service Fund records these transactions on 
the federal budget as governmental receipts and direct 
spending. To the extent that states choose to use charges on 
mobile telecommunications service to support universal service, 
S. 1755 could result in reduced revenues collected and lower 
direct spending. But based on information from the FCC and the 
Universal Service Administrative Company, CBO estimates that 
any change in revenues and direct spending as a result of 
enacting this legislation would be negligible.
    The costs of this legislation fall within budget function 
370 (commerce and housing credit).
    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 and receipts. As 
noted above, S. 1755 could affect direct spending and receipts, 
but CBO estimates that any such effects would be negligible.
    Estimated impact on state, local, and tribal governments: 
S. 1755 would preempt state and local government laws by 
prohibiting jurisdictions from taxing mobile telecommunications 
services unless the jurisdictions contain a customer's place of 
primary use. Such a preemption would be a mandate as defined in 
UMRA. This change could initially benefit some taxing 
jurisdictions and harm others depending on the number of 
customers with places of primary use within each jurisdiction. 
The bill would not require or prohibit state and local 
governments from taxing telecommunications services or affect 
the rate at which such services could be taxed. It would, 
however, require a uniform basis for determining which 
jurisdictions may tax mobile telecommunications services.
    Because the current system of taxing mobile 
telecommunications services is very complex, it is unclear what 
effect this change may have on revenues from such taxes. Based 
on information from groups representing the affected state and 
local governments, however, CBO estimates that the bill would, 
in total, be approximately revenue neutral across the country, 
although the distribution of revenues among jurisdictions would 
likely change.
    Estimated impact on the private sector: This bill contains 
no new private-sector mandates as defined by UMRA.
    Estimate prepared by: Federal Costs: Mark Hadley; Revenues: 
Hester Grippando; Impact on State, Local, and Tribal 
Governments: Shelley Finlayson; Impact on the Private Sector: 
Jean Wooster.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      Regulatory Impact Statement

    In accordance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following evaluation of the regulatory impact of the 
legislation, as reported:

                       number of persons covered

  The Committee believes that the bill will not subject any 
individuals or businesses affected by the bill to any 
additional regulation.

                            economic impact

  After full implementation of the bill, individuals, 
governmental authorities, and businesses will benefit from 
greater simplification of the manner in which mobile 
telecommunications services are taxed. Consumers will avoid the 
possibility of having a mobile telecommunications service taxed 
by competing taxing authorities. The audit and oversight 
complexities of the taxation of mobile telecommunications 
transactions will be simplified for state and local 
governments, reducing their costs. In addition, mobile 
telecommunications carriers will avoid the administrative costs 
of having to administer the tax laws and regulations in the 
dozens of state and local taxing authorities that each 
individual mobile telecommunications consumer may be located in 
while making or receiving calls during the course of each 
monthly billing period, reducing their costs as well. All told, 
costs will be reduced for consumers, taxpayers, state and local 
governments and the mobile telecommunications industry.

                                privacy

  There will be no impact on personal privacy as a result of 
this legislation.

                               paperwork

  The paperwork resulting from this legislation will be 
primarily related to the notice and updates to home service 
providers regarding electronic databases provided by the 
states.

                      Section-by-Section Analysis


Section 1. Short title

  The title of the Act is the ``Mobile Telecommunications 
Sourcing Act.''

Section 2. Findings

  The findings describe the problem of applying state and local 
transactional taxes to mobile telecommunications services and 
the competing value of preserving viable state and local 
governments in our federal system. The findings also 
acknowledge the need for a practical solution in the area of 
state and local taxation of mobile telecommunications services.

Section 3. Amendments to the Communications Act of 1934

  Section 3 reflects the fact that the legislation is 
structured as an amendment to the Communications Act because 
the Mobile Telecommunications Sourcing Act is a matter of 
interstate telecommunications policy rather than a revenue-
raising or revenue-cutting measure. Section 3 therefore adds 
title VIII to the Communications Act.
  Section 801(a) provides that the legislation applies to any 
tax, charge, or fee imposed by any taxing authority as a fixed 
charge for each customer or measured by gross amounts charged 
to customers for mobile telecommunications services. The legal 
imposition of the tax, charge, or fee does not matter.
  Section 801(b) identifies general taxes that are not subject 
to the provisions of the title. Taxes excluded from the title 
include, among others, income taxes and taxes assessed on an 
equitably apportioned amount that is not determined on a 
transactional basis.
  Section 801(c)(1) provides that the title does not apply to 
the determination of the taxing situs of prepaid telephone 
calling services.
  Section 801(c)(2) provides that the title does not affect the 
taxability of either the initial sale or subsequent resale of 
mobile services where the Internet Tax Freedom Act would 
preclude a taxing jurisdiction from imposing a tax, charge, or 
fee on such mobile telecommunications services.
  Section 801(c)(3) provides that the title does not apply to 
air-ground radiotelephone services as defined in 47 CFR 22.99 
as of June 1, 1999.
  Section 802 provides that mobile telecommunications services 
can only be subjected to a tax, charge, or fee by the taxing 
jurisdictions whose territorial limits encompass the customer's 
place of primary use, regardless of where the mobile 
telecommunications services originate, terminate, or pass 
through. The rule only applies to charges for mobile 
telecommunications services for which charges are billed by or 
for the home service provider with which the customer 
contracts. This section authorizes states and localities to 
impose taxes based upon the place of primary use and prohibits 
them from imposing taxes on mobile telecommunications services 
on any other basis.
  Section 803 clarifies that the title does not give taxing 
jurisdictions any authority that they do not already possess to 
impose a tax, charge, or fee. This section also clarifies that 
the title does not modify, impair, or supersede any current 
authority possessed by state and local taxing jurisdictions 
except as expressly provided in this title.
  Section 804 establishes a mechanism through which home 
service providers can determine the appropriate taxing 
authorities for a customer's place of primary use. It allows 
the states to provide home service providers with an electronic 
database containing such information in a uniform format. The 
database would match street addresses (in standard postal 
format) within the state to the applicable taxing 
jurisdictions. Section 804 also permits a designated database 
provider to provide an electronic database if a state does not 
provide such a database.
  Section 804 also provides that a home service provider that 
relies on the information contained in an electronic database 
will be held harmless from any tax, charge, or fee that 
otherwise would be due solely as a result of an error or 
omission in the database.
  Section 805 provides that a home service provider would be 
held harmless from any tax, charge, or fee that would otherwise 
be due if the database described in Section 804 does not exist 
in a state and the home service provider uses an enhanced zip 
code to determine the taxing jurisdictions associated with a 
customer's place of primary use. A home service provider must 
exercise due diligence when assigning taxing jurisdictions 
using the enhanced zip code method for the provisions of this 
section to apply. Additional requirements are set forth in this 
section regarding the use of the enhanced zip code method.
  Section 806 provides that a taxing jurisdiction under 
specified procedures can require a home service provider to 
change prospectively the customer's place of primary use or 
require the home service provider to change prospectively the 
applicable taxing jurisdiction(s) assigned to a customer's 
place of primary use.
  Section 807(a) establishes that a home service provider has 
the principal responsibility for obtaining and maintaining 
updated records on a customer's place of primary use. A home 
service provider may rely on information provided by the 
customer if such reliance is made in good faith. Section 807(a) 
also provides that, with respect to taxes customarily itemized 
and passed through on the customer's bills, the home service 
provider is not generally responsible for taxes subsequently 
determined to have been sourced in error.
  Section 807(b) provides that in the case of a contract 
existing prior to the effective date of the Act a home service 
provider may rely on its previous determination of the 
applicable taxing jurisdiction(s) for the remainder of the 
contract, excluding extensions or renewals of the contract.
  Section 808(a) provides that the title does not modify, 
impair, or supersede any law that authorizes a state or local 
taxing jurisdiction to collect a tax, charge, or fee from a 
customer who has failed to provide its place of primary use.
  Section 808(b) states that a home service provider must treat 
charges that reflect a bundled product, only part of which is 
taxable, as fully taxable, unless reasonable identification of 
the non-taxable charges is possible from the home service 
provider's business records kept in the regular course of 
business.
  Section 808(c) limits non-taxability of mobile 
telecommunications services in a jurisdiction where mobile 
telecommunications services are not taxable. A customer must 
treat charges as taxable unless the home service provider 
separately states the non-taxable charges or provides 
verifiable data from its business records kept in the regular 
course of business that reasonably identifies the non-taxable 
charges.
  Section 809 provides definitions specific to the title.
  Section 809(1) defines ``charges for mobile 
telecommunications services.''
  Section 809(2) defines ``taxing jurisdiction.''
  Section 809(3) defines ``place of primary use'' as the 
customer's business or residential street address in the 
licensed service area of the home service provider. Place of 
primary use is used to determine the taxing jurisdiction(s) 
that may tax the provision of mobile telecommunications 
services. If a home service provider has a national or regional 
service area, the place of primary use is still limited to the 
customer's business or residential street address within that 
larger service area.
  Section 809(4) defines ``licensed service area.''
  Section 809(5) defines ``home service provider.''
  Section 809(6) defines ``customer.'' Under a special rule, 
customers include employees (the end users) of businesses that 
contract for mobile telecommunications services. Customers do 
not include (i) resellers or (ii) a serving carrier providing 
wireless services for a customer who is outside the customer's 
home service provider's licensed service area.
  Section 809(7) defines ``designated database provider.''
  Section 809(8) defines ``prepaid telephone calling 
services.''
  Section 809(9) defines ``reseller.'' A reseller does not 
include a serving carrier providing mobile telecommunications 
services for a customer who is outside the customer's home 
service provider's licensed service area.
  Section 809(10) defines ``serving carrier.''
  Section 809(11) defines ``mobile telecommunications 
services'' as commercial mobile radio service as defined in 47 
CFR 20.3 as of June 1, 1999.
  Section 809(12) defines ``enhanced zip code,'' a term that 
refers to zip+4 or a zip code exceeding nine digits.
  Section 810 provides that the FCC has no jurisdiction over 
the interpretation, implementation, or enforcement of this 
title.
  Section 811 provides for nonseverability in the event of a 
judicial determination that the title is unconstitutional or 
otherwise substantially impaired from accomplishing its 
objective.
  Section 812(a) provides that nothing in the title is intended 
to reflect upon the intent of Congress in enacting the Internet 
Tax Freedom Act.
  Section 812(b) provides that nothing in the title impacts the 
implementation of the Telecommunications Act of 1996 or the 
amendments made by that Act.

Sec 4. Effective date

  Section 4 establishes an effective date of the first day of 
the first month beginning more than two years after enactment. 
The transitional delay allows both business and tax 
administrators to gear up for a change in their existing 
systems, including the possible use of the database authorized 
by section 804.

                        Changes in Existing Law

  In compliance with paragraph 12 of rule XXVI of the Standing 
Rules of the Senate, 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 material is printed 
in italic, existing law in which no change is proposed is shown 
in roman):

                       COMMUNICATIONS ACT OF 1934


      TITLE VIII--STATE AND LOCAL TREATMENT OF CHARGES FOR MOBILE 
                      TELECOMMUNICATIONS SERVICES.

SEC. 801. APPLICATION OF TITLE.

  (a) In General.--This title applies to any tax, charge, or 
fee levied by a taxing jurisdiction as a fixed charge for each 
customer or measured by gross amounts charged to customers for 
mobile telecommunications services, regardless of whether such 
tax, charge, or fee is imposed on the vendor or customer of the 
service and regardless of the terminology used to describe the 
tax, charge, or fee.
  (b) General Exceptions.--This title does not apply to--
          (1) any tax, charge, or fee levied upon or measured 
        by the net income, capital stock, net worth, or 
        property value of the provider of mobile 
        telecommunications service;
          (2) any tax, charge, or fee that is applied to an 
        equitably apportioned amount that is not determined on 
        a transactional basis;
          (3) any tax, charge, or fee that represents 
        compensation for a mobile telecommunications service 
        provider's use of public rights of way or other public 
        property, provided that such tax, charge, or fee is not 
        levied by the taxing jurisdiction as a fixed charge for 
        each customer or measured by gross amounts charged to 
        customers for mobile telecommunication services;
          (4) any generally applicable State-imposed business 
        and occupation tax--
                  (A) that is applied to gross receipts or 
                gross proceeds;
                  (B) that is the legal liability of the 
                carrier; and
                  (C) under which the carrier may elect to use 
                the sourcing rules under this title; or
          (5) any fee related to obligations under section 254 
        of this Act.''
  (c) Specific Exceptions.--This title--
          (1) does not apply to the determination of the taxing 
        situs of prepaid telephone calling services;
          (2) does not affect the taxability of either the 
        initial sale of mobile telecommunications services or 
        subsequent resale, whether as sales of the service 
        alone or as a part of a bundled product, where the 
        Internet Tax Freedom Act would preclude a taxing 
        jurisdiction from subjecting the charges of the sale of 
        these mobile telecommunications services to a tax, 
        charge, or fee but this section provides no evidence of 
        the intent of Congress with respect to the 
        applicability of the Internet Tax Freedom Act to such 
        charges; and
          (3) does not apply to the determination of the taxing 
        situs of air-ground radiotelephone service as defined 
        in section 22.99 of the Commission's regulations (47 
        CFR 22.99).

SEC. 802. SOURCING RULES.

  (a) In General.--Notwithstanding the law of any State or 
political subdivision thereof to the contrary, mobile 
telecommunicationsservices provided in a taxing jurisdiction to 
a customer, the charges for which are billed by or for the customer's 
home service provider, shall be deemed to be provided by the customer's 
home service provider.
  (b) Jurisidiction.--All charges for mobile telecommunications 
services that are deemed to be provided by the customer's home 
service provider under this title are authorized to be 
subjected to tax, charge, or fee by the taxing jurisdictions 
whose territorial limits encompass the customer's place of 
primary use, regardless of where the mobile telecommunication 
services originate, terminate or pass through, and no other 
taxing jurisdiction may impose taxes, charges, or fees on 
charges for such mobile telecommunications services.

SEC. 803. LIMITATIONS.

  This title does not--
          (1) provide authority to a taxing jurisdiction to 
        impose a tax, charge, or fee that the laws of the 
        jurisdiction do not authorize the jurisdiction to 
        impose; or
          (2) modify, impair, supersede, or authorize the 
        modification, impairment, or supersession of, the law 
        of any taxing jurisdiction pertaining to taxation 
        except as expressly provided in this title.

SEC. 804. ELECTRONIC DATABASES FOR NATIONWIDE STANDARD NUMERIC 
                    JURISDICTIONAL CODES.

  (a) Electronic Database.--A State may provide an electronic 
database to a home service provider or, if a State does not 
provide such an electronic database to home service providers, 
then the designated database provider may provide an electronic 
database to a home service provider. The electronic database, 
whether provided by the State or the designated database 
provider, shall be provided in a format approved by the 
American National Standards Institute's Accredited Standards 
Committee X12, that, allowing for de minimis deviations, 
designates for each street address in the State, including to 
the extent practicable, any multiple postal street addresses 
applicable to one street location, the appropriate taxing 
jurisdictions, and the appropriate code for each taxing 
jurisdiction, for each level of taxing jurisdiction, identified 
by one nationwide standard numeric code. The electronic 
database shall also provide the appropriate code for each 
street address with respect to political subdivisions which are 
not taxing jurisdictions when reasonably needed to determine 
the proper taxing jurisdiction. The nationwide standard numeric 
codes shall contain the same number of numeric digits with each 
digit or combination of digits referring to the same level of 
taxing jurisdiction throughout the United States using a format 
similar to FIPS 55-3 or other appropriate standard approved by 
the Federation of Tax Administrators and the Multistate Tax 
Commission, or their successors. Each address shall be provided 
in standard postal format.
  (b) Notice; Updates.--A State or designated database provider 
that provides or maintains an electronic database described in 
subsection (a) shall provide notice of the availability of the 
then current electronic database, and any subsequent revisions 
thereof, by publication in the manner normally employed for the 
publication of informational tax, charge, or fee notices to 
taxpayers in that State.
  (c) User Held Harmless.--A home service provider using the 
data contained in the electronic database described in 
subsection (a) shall be held harmless from any tax, charge, or 
fee liability that otherwise would be due solely as a result of 
any error or omission in the electronic database provided by a 
State or designated database provider. The home service 
provider shall reflect changes made to the electronic database 
during a calendar quarter no later than 30 days after the end 
of that calendar quarter for each State that issues notice of 
the availability of an electronic database reflecting such 
changes under subsection (b).

SEC. 805. PROCEDURE WHERE NO ELECTRONIC DATABASE PROVIDED.

  (a) In General.--If neither a State nor designated database 
provider provides an electronic database under section 804, a 
home service provider shall be held harmless from any tax, 
charge, or fee liability in that State that otherwise would be 
due solely as a result of an assignment of a street address to 
an incorrect taxing jurisdiction if, subject to section 806, 
the home service provider employs an enhanced zip code to 
assign each street address to a specific taxing jurisdiction 
for each level of taxing jurisdiction and exercises due 
diligence at each level of taxing jurisdiction to ensure that 
each such street address is assigned to the correct taxing 
jurisdiction. Where an enhanced zip code overlaps boundaries of 
taxing jurisdictions of the same level, the home service 
provider must designate one specific jurisdiction within such 
enhanced zip code for use in taxing the activity for that 
enhanced zip code for each level of taxing jurisdiction. Any 
enhanced zip code assignment changed in accordance with section 
806 is deemed to be in compliance with this section. For 
purposes of this section, there is a rebuttable presumption 
that a home service provider has exercised due diligence if 
such home service provider demonstrates that it has--
          (1) expended reasonable resources to implement and 
        maintain an appropriately detailed electronic database 
        of street address assignments to taxing jurisdictions;
          (2) implemented and maintained reasonable internal 
        controls to promptly correct misassignments of street 
        addresses to taxing jurisdictions; and
          (3) used all reasonably obtainable and usable data 
        pertaining to municipal annexations, incorporations, 
        reorganizations and any other changes in jurisdictional 
        boundaries that materially affect the accuracy of the 
        electronic database.
  (b) Termination of Safe Harbor.--Subsection (a) applies to a 
home service provider that is in compliance with the 
requirements of subsection (a), with respect to a State for 
which an electronic database is not provided under section 804 
until the later of--
          (1) 18 months after the nationwide standard numeric 
        code described in section 804(a) has been approved by 
        the Federation of Tax Administrators and the Multistate 
        Tax Commission; or
          (2) 6 months after that State or a designated 
        database provider in that State provides the electronic 
        database as prescribed in section 804(a).

SEC. 806. CORRECTION OF ERRONEOUS DATA FOR PLACE OF PRIMARY USE.

  (a) In General.--A taxing jurisdiction, or a State on behalf 
of any taxing jurisdiction or taxing jurisdictions within such 
State, may--
          (1) determine that the address used for purposes of 
        determining the taxing jurisdictions to which taxes, 
        charges, or fees for mobile telecommunications services 
        are remitted does not meet the definition of place of 
        primary use in section 809(3) and give binding notice 
        to the home service provider to change the place of 
        primary use on a prospective basis from the date of 
        notice of determination if--
                  (A) where the taxing jurisdiction making such 
                determination is not a State, such taxing 
                jurisdiction obtains the consent of all 
                affected taxing jurisdictions within the State 
                before giving such notice of determination; and
                  (B) the customer is given an opportunity, 
                prior to such notice of determination, to 
                demonstrate in accordance with applicable State 
                or local tax, charge, or fee administrative 
                procedures that the address is the customer's 
                place of primary use;
          (2) determine that the assignment of a taxing 
        jurisdiction by a home service provider under section 
        805 does not reflect the correct taxing jurisdiction 
        and give binding notice to the home service provider to 
        change the assignment on a prospective basis from the 
        date of notice of determination if--
                  (A) where the taxing jurisdiction making such 
                determination is not a State, such taxing 
                jurisdiction obtains the consent of all 
                affected taxing jurisdictions within the State 
                before giving such notice of determination; and
                  (B) the home service provider is given an 
                opportunity to demonstrate in accordance with 
                applicable State or local tax, charge, or fee 
                administrative procedures that the assignment 
                reflects the correct taxing jurisdiction.

SEC. 807. DUTY OF HOME SERVICE PROVIDER REGARDING PLACE OF PRIMARY USE.

  (a) Place of Primary Use.--A home service provider is 
responsible for obtaining and maintaining the customer's place 
of primary use (as defined in section 809). Subject to section 
806, and if the home service provider's reliance on information 
provided by its customer is in good faith, a home service 
provider--
          (1) may rely on the applicable residential or 
        business street address supplied by the home service 
        provider's customer; and
          (2) is not liable for any additional taxes, charges, 
        or fees based on a different determination of the place 
        of primary use for taxes, charges or fees that are 
        customarily passed on to the customer as a separate 
        itemized charge.
  (b) Address Under Existing Agreements.--Except as provided in 
section 806, a home service provider may treat the address used 
by the home service provider for tax purposes for any customer 
under a service contract or agreement in effect 2 years after 
the date of enactment of the Mobile Telecommunications Sourcing 
Act as that customer's place of primary use for the remaining 
term of such service contract or agreement, excluding any 
extension or renewal of such service contract or agreement, for 
purposes of determining the taxing jurisdictions to which 
taxes, charges, or fees on charges for mobile 
telecommunications services are remitted.

SEC. 808. SCOPE; SPECIAL RULES.

  (a) Title Does Not Supersede Customer's Liability to Taxing 
Jurisdiction.--Nothing in this title modifies, impairs, 
supersedes, or authorizes the modification, impairment, or 
supersession of, any law allowing a taxing jurisdiction to 
collect a tax, charge, or fee from a customer that has failed 
to provide its place of primary use.
  (b) Additional Taxable Charges.--If a taxing jurisdiction 
does not otherwise subject charges for mobile 
telecommunications services to taxation and if these charges 
are aggregated with and not separately stated from charges that 
are subject to taxation, then the charges for otherwise non-
taxable mobile telecommunications services may be subject to 
taxation unless the home service provider can reasonably 
identify charges not subject to such tax, charge, or fee from 
its books and records that are kept in the regular course of 
business.
  (c) Non-taxable Charges.--If a taxing jurisdiction does not 
subject charges for mobile telecommunications services to 
taxation, a customer may not rely upon the non-taxability of 
charges for mobile telecommunications services unless the 
customer's home service provider separately states the charges 
for non-taxable mobile telecommunications services from taxable 
charges or the home service provider elects, after receiving a 
written request from the customer in the form required by the 
provider, to provide verifiable data based upon the home 
service provider's books and records that are kept in the 
regular course of business that reasonably identifies the non-
taxable charges.
  (d) References to Regulations.--Any reference in this title 
to the Commission's regulations is a reference to those 
regulations as they were in effect on June 1, 1999.

SEC. 809. DEFINITIONS.

  In this title:
          (1) Charges for mobile telecommunications services.--
        The term ``charges for mobile telecommunications 
        services'' means any charge for, or associated with, 
        the provision of commercial mobile radio service, as 
        defined in section 20.3 of the Commission's regulations 
        (47 CFR 20.3), or any charge for, or associated with, a 
        service provided as an adjunct to a commercial mobile 
        radio service, that is billed to the customer by or for 
        the customer's home service provider regardless of 
        whether individual transmissions originate or terminate 
        within the licensed service area of the home service 
        provider.
          (2) Taxing jurisdiction.--The term ``taxing 
        jurisdiction'' means any of the several States, the 
        District of Columbia, or any territory or possession of 
        the United States, any municipality, city, county, 
        township, parish, transportation district, or 
        assessment jurisdiction, or any other political 
        subdivision within the territorial limits of the United 
        States with the authority to impose a tax, charge, or 
        fee.
          (3) Place of primary use.--The term ``place of 
        primary use'' means the street address representative 
        of where the customer's use of the mobile 
        telecommunications service primarily occurs, which must 
        be--
                  (A) either the residential street address or 
                the primary business street address of the 
                customer; and
                  (B) within the licensed service area of the 
                home service provider.
          (4) Licensed service area.--The term ``licensed 
        service area'' means the geographic area in which the 
        home service provider is authorized by law or contract 
        to provide commercial mobile radio service to the 
        customer.
          (5) Home service provider.--The term ``home service 
        provider'' means the facilities-based carrier or 
        reseller with which the customer contracts for the 
        provision of mobile telecommunications services.
          (6) Customer.--
                  (A) In general.--The term ``customer'' 
                means--
                          (i) the person or entity that 
                        contracts with the home service 
                        provider for mobile telecommunications 
                        services; or
                          (ii) where the end user of mobile 
                        telecommunications services is not the 
                        contracting party, the end user of the 
                        mobile telecommunications service, but 
                        this clause applies only for the 
                        purpose of determining the place of 
                        primary use.
                  (B) The term ``customer'' does not include--
                          (i) a reseller of mobile 
                        telecommunications service; or
                          (ii) a serving carrier under an 
                        arrangement to serve the customer 
                        outside the home service provider's 
                        licensed service area.
          (7) Designated database provider.--The term 
        ``designated database provider'' means a corporation, 
        association, or other entity representing all the 
        political subdivisions of a State that is--
                  (A) responsible for providing the electronic 
                database prescribed in section 804(a) if the 
                State has not provided such electronic 
                database; and
                  (B) sanctioned by municipal and county 
                associations or leagues of the State whose 
                responsibility it would otherwise be to provide 
                the electronic database prescribed by this 
                title.
          (8) Prepaid telephone calling services.--The term 
        ``prepaid telephone calling service'' means the right 
        to purchase exclusively telecommunications services 
        that must be paid for in advance, that enables the 
        origination of calls using an access number, 
        authorization code, or both, whether manually or 
        electronically dialed, if the remaining amount of units 
        of service that have been prepaid is known by the 
        provider of the prepaid service on a continuous basis.
          (9) Reseller.--The term ``reseller''--
                  (A) means a provider who purchases 
                telecommunications services from another 
                telecommunications service provider and then 
                resells, uses as a component part of, or 
                integrates the purchased services into a mobile 
                telecommunications service; but
                  (B) does not include a serving carrier with 
                which a home service provider arranges for the 
                services to its customers outside the home 
                service provider's licensed service area.
          (10) Serving carrier.--The term ``serving carrier'' 
        means a facilities-based carrier providing mobile 
        telecommunications service to a customer outside a home 
        service provider's or reseller's licensed service area.
          (11) Mobile telecommunications service.--The term 
        ``mobile telecommunications service'' means commercial 
        mobile radio service, as defined in section 20.3 of the 
        Commission's regulations (47 CFR 20.3).
          (12) Enhanced zip code.--The term ``enhanced zip 
        code'' means a United States postal zip code of 9 or 
        more digits.

SEC. 810. COMMISSION NOT TO HAVE JURISDICTION OF TITLE.

  Notwithstanding any other provision of this Act, the 
Commission shall have no jurisdiction over the interpretation, 
implementation, or enforcement of this title.

SEC. 811. NONSEVERABILITY.

  If a court of competent jurisdiction enters a final judgment 
on the merits that is no longer subject to appeal, which 
substantially limits or impairs the essential elements of this 
title based on federal statutory or federal Constitutional 
grounds, or which determines that this title violates the 
United States Constitution, then the provisions of this title 
are null and void and of no effect.

SEC. 812. NO INFERENCE.

  (a) Internet Tax Freedom Act.--Nothing in this title may be 
construed as bearing on Congressional intent in enacting the 
Internet Tax Freedom Act or as affecting that Act in any way.
  (b) Telecommunications Act of 1996.--Nothing in this title 
shall limit or otherwise affect the implementation of the 
Telecommunications Act of 1996 or the amendments made by that 
Act.''

                                  
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