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H.R. 3529 (105th): Internet Tax Freedom Act of 1998


The text of the bill below is as of Mar 23, 1998 (Introduced).


HR 3529 IH

105th CONGRESS

2d Session

H. R. 3529

To establish a national policy against State and local interference with interstate commerce on the Internet or online services, and to excise congressional jurisdiction over interstate commerce by establishing a moratorium on the imposition of exactions that would interfere with the free flow of commerce via the Internet, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

March 23, 1998

Mr. CHABOT introduced the following bill; which was referred to the Committee on the Judiciary, and in addition to the Committees on Rules, and Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned


A BILL

To establish a national policy against State and local interference with interstate commerce on the Internet or online services, and to excise congressional jurisdiction over interstate commerce by establishing a moratorium on the imposition of exactions that would interfere with the free flow of commerce via the Internet, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ‘Internet Tax Freedom Act’.

SEC. 2. FINDINGS.

    The Congress finds the following:

      (1) As a massive global network spanning not only State but international borders, the Internet and the related provision of online services and Internet access are matters involving interstate and foreign commerce within the jurisdiction of the United States Congress under Article I, section 8, clause 3 of the United States Constitution.

      (2) Even within the United States, the Internet does not respect State lines and operates independently of State boundaries. Addresses on the Internet are designed to be geographically indifferent. Internet transmissions are insensitive to physical distance and can have multiple geographical addresses.

      (3) Because transmissions over the Internet are made using computer protocols, in particular the Transmission Control Protocol/Internet Protocol, that utilize packet switching technology, it is impossible to determine in advance the precise geographic route over which individual Internet transmissions will travel; and it is therefore infeasible to separate domestic intrastate Internet transmissions from interstate and foreign Internet transmissions.

      (4) Consumers, businesses, and others engaging in interstate and foreign commerce through online services and the Internet could become subject to new taxes imposed by thousands of separate taxing jurisdictions in the United States alone.

      (5) Inconsistent and inadministerable taxes imposed on the Internet, Internet access, and online services by Federal, State, and local governments would subject consumers, businesses, and other users engaged in interstate and foreign commerce to multiple, confusing, and burdensome taxation, and restrict the growth and continued technological maturation of the Internet itself.

      (6) The Federal Government does not presently, and as a matter of national policy should not in the future, tax the Internet, Internet access, online services, or electronic commerce.

      (7) The twenty-first century marketplace requires a twenty-first century sales tax system that is more uniform, consistent, and streamlined. Not only will tax simplification make businesses more competitive, but it will make government more efficient, resulting in personal benefits to every consumer and citizen.

      (8) Because the tax laws and regulations of so many jurisdictions were established long before the advent of the Internet, their application to this new medium in unintended and unpredictable ways could prove to be an unacceptable burden on the interstate and foreign commerce of the Nation.

      (9) The electronic marketplace of services, products, and ideas available through the Internet can be especially beneficial to senior citizens, the physically challenged, citizens in rural areas, and small businesses. It also offers a variety of uses and benefits for educational institutions and charitable organizations.

      (10) A consistent and coherent national policy regarding taxation of electronic commerce conducted over the Internet, and the concomitant uniformity, simplicity, and fairness that is needed to avoid burdening this evolving form of interstate and foreign commerce, can best be achieved by the United States exercising its authority under Article I, section 8, clause 3 of the United States Constitution to encourage a cooperative solution among Federal, State, and local levels of government.

SEC. 3. MORATORIUM ON CERTAIN TAXES.

    (a) EXTENT AND DURATION OF MORATORIUM- For a period of three years following the enactment of this Act, neither any State nor any political subdivision thereof shall impose, assess, collect, or attempt to collect any of the following specified taxes:

      (1) Taxes on Internet access.

      (2) Taxes on online services.

      (3) Bit taxes.

      (4) Bandwidth taxes.

      (5) Multiple taxes on electronic commerce.

      (6) Discriminatory taxes on electronic commerce.

    (b) EXCEPTION- The prohibition in subsection (a) shall not apply to taxes expressly imposed on Internet access or online services by State statute enacted prior to March 1, 1998: Provided, That the rate of such tax may not be increased beyond the rate imposed on March 1, 1998.

SEC. 4. CONSULTATIVE GROUP ON THE INTERNATIONAL TAXATION OF ELECTRONIC COMMERCE.

    (a) CONSULTATIVE GROUP- The Secretaries of the Treasury, State, and Commerce, in consultation with appropriate committees of the Congress, States and political subdivisions thereof, consumer and business groups, and other appropriate groups, shall undertake an examination of the international taxation of--

      (1) domestic and international communications and transactions using the Internet;

      (2) goods and services imported to and exported from the United States using the Internet;

      (3) goods and services imported to and exported from the United States by means in competition with the Internet, including mail order sales;

      (4) Internet access; and

      (5) the telecommunications infrastructure used by the Internet, online services, and Internet access.

    (b) PRESIDENT- Not later than 2 years from the date of enactment of this Act, the President shall, to the extent and in the form the President deems appropriate, transmit to the appropriate committees of Congress policy recommendations on the international taxation of communications and transactions using the Internet.

SEC. 5. COMMISSION ON ELECTRONIC COMMERCE.

    (a) ESTABLISHMENT OF COMMISSION- There is established a temporary commission to be known as the Commission on Electronic Commerce, hereinafter referred to as the ‘Commission’. The Commission shall--

      (1) be composed of 29 members, including the Chairman, in accordance with subsection (b); and

      (2) conduct its business in accordance with the provisions of this Act.

    (b) MEMBERSHIP-

      (1) IN GENERAL- The Commissioners shall serve for the life of the Commission. The membership of the Commission shall be as follows:

        (A) The Secretary of the Treasury and the Secretary of Commerce.

        (B) Two representatives each from the National Governors’ Association, the National Conference of State Legislatures, the Council of State Governments, the National Association of Counties, the National League of Cities, the United States Conference of Mayors, and the International City/County Managers Association.

        (C) Twelve representatives of consumers and business, of which two each shall be appointed by the President, the Senate majority leader, the Senate minority leader, the Speaker of the House, the House majority leader, and the House minority leader.

      (2) CHAIRPERSON- The Chairperson of the Commission shall be appointed upon the joint recommendation of the Senate majority leader, the Senate minority leader, the Speaker of the House, the House majority leader, and the House minority leader, based on nominations from the National Governors’ Association.

      (3) APPOINTMENTS- Appointments to the Commission shall be made within 45 days of enactment of this Act.

    (c) SUNSET- The existence of the Commission shall terminate upon transmittal of its recommendations to Congress.

    (d) QUORUM- Fifteen members of the Commission shall constitute a quorum for conducting the business of the Commission.

    (e) DUTIES OF THE COMMISSION- The Commission shall, in consultation with the National Tax Association Communications and Electronic Commerce Tax Project and other appropriate groups, undertake an examination of--

      (1) a uniform system of definitions of remote commerce subject to sales and use tax within each State;

      (2) a simplified system for sales and use taxes that provides for a single statewide sales or use tax rate on all remote commerce, which rate may be zero, and establishes a method of distributing to political subdivisions within each State their proportionate share of such taxes;

      (3) significant simplifications in the interstate administration of the sales and use tax, including uniform tax registration, tax returns, remittance requirements, and filing procedures;

      (4) an independent third party collection system that would utilize the technology of the Internet to further simplify sales and use tax administration and collection; and

      (5) the level of contacts between a State imposing sales or use tax on remote commerce that should be considered sufficient to subject the remote seller to collection obligations imposed by the State, including the definition of a level of contacts below which a State may not impose on a remote seller the obligation to collect sales or use tax.

SEC. 6. LEGISLATIVE RECOMMENDATIONS.

    (a) TRANSMISSION OF PROPOSED LEGISLATION TO THE PRESIDENT- Within 2 years from the date of enactment of this Act, the Commission described in section 5 shall transmit to the President proposed legislation reflecting its recommendations concerning the matters described in section 7.

    (b) CONTENTS OF PROPOSED LEGISLATION- The proposed legislation submitted by the Commission shall--

      (1) define with particularity the level of contacts between a State imposing sales or use tax on remote commerce that will be considered sufficient to subject the remote seller to collection obligations imposed by the State;

      (2) provide that if, and only if, a State has adopted a single sales and use tax rate for remote commerce, and adopted simplified procedures for the administration of its sales and use taxes, including uniform registration, tax returns, remittance requirements, and filing procedures, then such State shall be authorized to impose on remote sellers a duty to collect sales or use tax on remote commerce;

      (3) provide that, effective upon the expiration of 4 years from the date of enactment of the legislation described in this section a State which elects not to adopt a single sales and use tax rate and simplified administrative procedures shall be deemed to have adopted a sales and use tax rate on remote commerce equal to zero;

      (4) include uniform definitions of remote commerce subject to sales and use taxes;

      (5) make permanent the temporary moratorium described in section 3 on Internet access taxes, bit taxes, and bandwidth taxes, and permanently ban such other taxes on electronic commerce as the Commission deems appropriate; and

      (6) be consistent with the statement of policy set forth in paragraphs (1) and (2) of section 230(b) of the Communications Act of 1934, as amended.

    (c) TRANSMISSION OF PROPOSED LEGISLATION TO THE CONGRESS- Within 45 days after the transmission to the President of the legislation proposed by the Commission, the President shall transmit to the Congress a report containing the President’s approval or disapproval of the legislative recommendations, and his reasons therefor. Upon the expiration of 45 days after the transmission to the President of the proposed legislation submitted by the Commission, the Commission shall transmit such proposed legislation to the Congress.

SEC. 7. EXPEDITED CONSIDERATION OF LEGISLATIVE RECOMMENDATIONS.

    Within 90 legislative days after the transmission to the Congress of the proposed legislation described in section 6(c), such legislation shall be discharged from the respective committees of jurisdiction within the House of Representatives and the Senate, and shall be referred to the proper calendar on the floor of each House for final action.

SEC. 8. DECLARATION THAT THE INTERNET SHOULD BE FREE OF FOREIGN TARIFFS, TRADE BARRIERS, AND OTHER RESTRICTIONS.

    It is the sense of the Congress that the President should seek bilateral and multilateral agreements through the World Trade Organization, the Organization for Economic Cooperation and Development, the Asia Pacific Economic Cooperation Council, and other appropriate international fora to establish that commercial transactions using the Internet are free from tariff and taxation.

SEC. 9. DEFINITIONS.

    For the purposes of this Act:

      (1) INTERNET- The term ‘Internet’ shall have the meaning set forth in section 230(e)(1) of the Communications Act of 1934, as amended.

      (2) INTERNET ACCESS- The term ‘Internet access’ means the offering or provision of the storage, computer processing, and delivery of information that enables the user to make use of resources found via the Internet.

      (3) ONLINE SERVICE- The term ‘online service’ means the offering or provision of information, information processing, and products or services to a user as part of a package of services that are combined with Internet access and offered to the user for a single price.

      (4) ELECTRONIC COMMERCE- The term ‘electronic commerce’ means any transaction comprising the sale, offer, or delivery of goods or services (including Internet access and online services) via the Internet.

      (5) REMOTE COMMERCE- The term ‘remote commerce’ means the sale and delivery of goods or services by a person in one State to a purchaser in another State.

      (6) REMOTE SELLER- The term ‘remote seller’ means a person who sells goods or services from one State to a purchaser in another State.

      (7) TAX- The term ‘tax’ means--

        (A) any levy, fee, or charge imposed under governmental authority by any governmental entity; and

        (B) the imposition on the seller of an obligation to collect and remit to a governmental entity any such levy, fee, or charge imposed on the buyer by a governmental entity.

      (8) BIT TAX- The term ‘bit tax’ means any transactional tax imposed on or measured by the amount of digital information transmitted electronically, or any transactional tax imposed on or measured according to any of the technological or operating characteristics of the Internet.

      (9) BANDWIDTH TAX- The term ‘bandwidth tax’ means any transactional tax imposed on or measured by the physical capacity of an available signal to transmit digital information electronically.

      (10) MULTIPLE TAX- The term ‘multiple tax’ means any tax that is imposed by one State or political subdivision thereof on the same or essentially the same electronic commerce that is also taxed by any other State or political subdivision thereof whether or not at the same rate or on the same basis, and includes any tax that does not ensure that the cost incurred in using telecommunications services to offer, sell, or provide electronic commerce is not subject to taxation under the same tax at a different stage of the process of offering, selling, or providing such electronic commerce.

      (11) DISCRIMINATORY TAX- The term ‘discriminatory tax’ means any tax imposed by a State or political subdivision thereof on electronic commerce that is not generally imposed and legally collectible at the same rate by that State or political subdivision thereof on similar goods or services not using the Internet, online services, or Internet access, and includes--

        (A) any tax on electronic commerce that imposes an obligation to collect or pay the tax on a different person or entity than in the case of similar goods or services not using the Internet, online services, or Internet access;

        (B) any tax imposed or levied by a State or political subdivision thereof, where--

          (i) the use of a computer server on the Internet to create or maintain a World Wide Web page or site by a remote seller is considered as a factor in determining whether the remote seller has a substantial nexus; or

          (ii) an Internet access provider, online service provider, or World Wide Web hosting service provider is deemed to be the agent or representative of a remote seller as a result of the provider maintaining or taking orders via a web page or site on a computer that is physically located within a taxing jurisdiction;

        Provided, That this definition does not include a tax imposed or levied by a State where a remote seller’s interest in physical property such as computer hardware (but not including data) is considered as a factor in determining whether a remote seller has a substantial nexus;

        (C) any tax purportedly levied by any State or political subdivision thereof on electronic mail services, Internet site selection, electronic newsgroups and bulletin boards, Internet relay chat, Internet search services, and other online services that are either not taxed by such jurisdiction when provided via means other than the Internet or online services, or that by their nature are so related to the Internet or online services that substantially the same service is not offered via means other than the Internet or online services within such State or political subdivision; and

        (D) any tax that establishes a classification for providers or sellers of electronic commerce or online services for purposes of applying a tax rate higher than the tax rate generally applied to providers of similar goods or information services not using the Internet.

SEC. 10. NO EXPANSION OF TAX AUTHORITY.

    Nothing in this Act shall be construed to expand the duty of any person to collect or pay taxes beyond that which existed on March 1, 1998.