[Senate Report 108-155]
[From the U.S. Government Publishing Office]
108th Congress Report
1st Session SENATE 108-155
_______________________________________________________________________
INTERNET TAX NON-DISCRIMINATION ACT OF 2003
__________
R E P O R T
OF THE
COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
on
S. 150
September 29, 2003.--Ordered to be printed
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
one hundred eighth congress
first session
JOHN MCCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois RON WYDEN, Oregon
JOHN ENSIGN, Nevada BARBARA BOXER, California
GEORGE ALLEN, Virginia BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire MARIA CANTWELL, Washington
FRANK LAUTENBERG, New Jersey
Jeanne Bumpus, Staff Director and General Counsel
Ann Begeman, Deputy Staff Director
Robert W. Chamberlin, Chief Counsel
Kevin D. Kayes, Democratic Staff Director and Chief Counsel
Gregg Elias, Democratic General Counsel
108th Congress Report
SENATE
1st Session 108-155
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INTERNET TAX NON-DISCRIMINATION ACT OF 2003
_______
September 29, 2003.--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. 150]
The Committee on Commerce, Science, and Transportation, to
which was referred the bill (S. 150) to make permanent the
moratorium on taxes on Internet access and multiple and
discriminatory taxes on electronic commerce imposed by the
Internet Tax Freedom Act, 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 primary purpose of S. 150, as amended, is to extend
permanently the current Federal moratorium on State and local
taxation of Internet access under the Internet Tax Freedom Act
of 1998 (ITFA or the Act) and to ensure that the moratorium is
applied in a technology neutral fashion.
Background and Needs
In 1998, the ITFA was enacted to impose a temporary
moratorium on certain taxes that could have a detrimental
effect on the continued expansion of Internet use in the United
States. A grandfathering provision was included in the ITFA to
allow States that were imposing such a tax as of October 1,
1998, to continue to do so. At the time, 26.2 percent of United
States households had Internet access, according to the
Department of Commerce (DOC). The DOC reports that by September
2001, prior to the renewal of the ITFA for a two-year period,
50.5 percent of United States households had Internet access.
Forrester Research, a technology industry research firm,
estimates that in 2002, 64 percent of United States households
had Internet access, more than twice the number of households
with Internet access at the time the ITFA was enacted.
Despite the significant growth rate of Internet use in the
United States since 1998, the penetration rate of Internet
access still lags behind other basic technologies. For example,
and in contrast to the Internet access rates cited above, 95.3
percent of American households have telephone service,
according to the Federal Communications Commission (FCC). In
addition, many of the households with Internet access have only
basic dial-up access, and have not migrated to broadband access
services, which offer higher bandwidth connections that permit
faster data transmission and thus facilitate and enhance
services such as streaming audio and video. The Yankee Group, a
technology industry research firm, estimates that in 2002 only
15 percent of American households had broadband access, while
most users connected through dial-up modem access. Accordingly,
there remains a need to ensure that taxes on Internet access
will not pose a hurdle to the continued adoption of basic dial-
up access or to the migration from basic Internet access to
broadband Internet access.
Since the enactment of the ITFA, e-commerce also has grown
significantly. For example, in the fourth quarter of 1999, e-
commerce retail sales totaled $5.39 billion, according to the
DOC. By contrast, in the first quarter of 2003, the DOC
estimates that e-commerce retail sales totaled $11.92 billion.
Nevertheless, e-commerce remains a small fraction of overall
economic activity in the United States. According to the DOC,
in the fourth quarter of 1999, e-commerce accounted for 0.7
percent of total retail sales in the United States. By the
first quarter of 2003, this percentage had more than doubled to
1.5 percent of the United States' total retail sales. However,
e-commerce still remains an emerging component of the economy.
As such, it merits the guarantee of fair and equal tax
treatment that the ITFA provides through its provisions
regarding multiple and discriminatory taxes on e-commerce.
To avoid impeding the growth of Internet use and of e-
commerce in the United States, the Senate Committee on
Commerce, Science, and Transportation (the Committee) believes
that the ITFA's Internet tax moratorium should be made
permanent. However, the extension of the ITFA moratorium is
intended to prohibit only taxes on Internet access, as well as
multiple and discriminatory taxes on e-commerce. The permanent
extension of the ITFA would not affect States' and localities'
current right and ability to collect sales taxes on e-commerce
transactions or any other taxes not prohibited by the United
States Constitution, the ITFA, or any other Federal law.
In addition, the Committee believes that the current
definition of Internet access under the Act requires
clarification to ensure that States and localities do not
attempt to circumvent the moratorium on Internet access taxes
by taxing individual components of access such as
telecommunications services used to provide Internet access. To
date, some States have interpreted narrowly the definition of
Internet access under the ITFA in order to impose taxes on
certain types of Internet access or components thereof. For
example, certain States tax the transmission component of
digital subscriber line (DSL) Internet access.
S. 150, as amended, would update the language of the ITFA in
recognition of the significant technological developments in
the methods used to access the Internet since 1998. The bill
would ensure that all such methods, whether in the form of
dial-up, DSL, cable, satellite, wireless, or any other
technology platform, as well as components used to provide
Internet access, would be covered by the Internet access tax
moratorium and, therefore, would be exempt from State and local
taxation. Specifically, section 2(c) of S. 150, as amended,
would modify the definition of ``Internet access'' to include
only telecommunications services that are used to provide
Internet access within the scope of the tax exemption provided
by the ITFA.
The Committee does not intend for the removal of section
1101(d) of the ITFA and the modification to the definition of
Internet access as set forth in section 2 of S. 150, as
amended, to affect the State and local governments' authority
to assess and collect taxes that do not fall within the tax
categories set forth in section 1101(a) of the ITFA, such as
traditional sales and use taxes, excise taxes, property taxes,
corporate income taxes, gross receipts taxes, business and
occupational taxes, and other such taxes that are generally
applied and not enumerated in section 1101(a) of the Act.
The Committee intends for the tax exemption for
telecommunications services to apply whenever the ultimate use
of those telecommunications services is to provide Internet
access. Thus, if a telecommunications carrier sells wholesale
telecommunications services to an Internet service provider
that intends to use those telecommunications services to
provide Internet access, then the exemption would apply.
The modified definition of Internet access would clarify that
all transmission components of Internet access, regardless of
the regulatory treatment of the underlying platform, are
covered under the ITFA's Internet tax moratorium only when the
transmission component is used to provide Internet access. For
example, the FCC has determined that the transmission component
of cable modem service constitutes ``telecommunications'' (as
defined in the Communications Act of 1934, as amended (1934
Act)) not offered separately from the Internet access and is
thus not a ``telecommunications service'' (as defined in the
1934 Act). By contrast, the FCC currently classifies the
transmission component of Internet access via DSL as a
``telecommunications service'' (as defined in the 1934 Act). By
modifying the definition of Internet access, the Committee
seeks to clarify that, under the ITFA, neither Internet access
nor the transmission component of Internet access is subject to
taxation.
By approving S. 150, the Committee neither condones nor
rejects the FCC's decisions regarding the regulatory
classification of any services. The revised definition of
``Internet access'' would apply only to the term as used in S.
150. It is not intended to affect in any way existing laws,
regulations, policies, or regulatory decisions by the FCC or
any other agency. Specifically, the revised definition of
Internet access does not reflect any intention on the part of
the Committee to influence any regulatory decisions made by the
FCC or any other agency regarding the classification of
Internet access as ``information services'' (as defined in the
1934 Act), ``telecommunications services'' (as defined in the
1934 Act), or otherwise.
Further, the modified definition of Internet access is not
meant to affect State and local taxation of traditional
telecommunications services and other services that are not
used to provide Internet access. For example, the moratorium
does not allow an Internet access provider to claim or to seek
immunity from State or local taxes for the provision of other
services--such as cable television programming--that are
separate from Internet access. Nor does the moratorium exempt
telecommunications services provided over the same facilities
that are not used to provide Internet access.
Likewise, the modified definition of Internet access does not
exempt from State or local taxation otherwise taxable products
or services that are bundled with Internet access. The
Committee intends that this clarification will be narrowly
construed to include only those telecommunications services
that are actually being used to provide Internet access. The
Committee does not intend to include telecommunications
services that are being used to provide services other than
Internet access, regardless of whether those other services are
offered separately or as part of a package that includes
Internet access. In addition, the Committee intends for the
words ``to the extent that'' to constitute words of limitation
that clarify that a particular medium can deliver services
other than Internet access. The language makes clear that when
a particular medium is used to provide services other than
Internet access, neither that medium nor those services fall
under the ITFA's tax exemption. For example, a package of
services that includes local voice, long distance voice, and
Internet access would be covered under the Internet tax
moratorium only with respect to the portion of the package that
actually constitutes Internet access. In addition, the modified
definition would not affect the taxability of voice telephony
over the public switched telephone network (so-called ``plain
old telephone service'' or ``POTS'').
Finally, the Committee does not intend for the lapse of the
grandfathering protection to affect the authority of State and
local taxing authorities to assess and collect traditional
sales and use taxes, excise taxes, property taxes, corporate
income taxes, gross receipts taxes, business and occupational
taxes, and other such taxes that are generally applied and are
not enumerated in section 1101(a) of the ITFA.
Summary of Provisions
As reported, S. 150 would:
Extend permanently the current Federal
moratorium on State and local taxation of Internet
access under the ITFA.
Make permanent the current Federal
prohibition under the Act on multiple and
discriminatory State and local taxes relating to e-
commerce transactions.
Extend by three years, from October 1, 2003,
the current grandfathering provision in the ITFA that
permits States that imposed or enforced a tax on
Internet access prior to the passage of the legislation
in 1998 to continue doing so.
Supplement the definition of Internet access
to ensure that all Internet access is free from State
and local taxes regardless of the technology used to
provide such access.
Ensure the FCC's and the States' ability to
collect and remit Universal Service funds as authorized
by section 254 of the Communications Act of 1934 would
not be affected.
Legislative History
The ITFA was signed into law on October 21, 1998 (P.L. 105-
277; included as titles XI and XII of the Omnibus
Appropriations Act of 1998). It imposed a three-year moratorium
on State and local government taxes on Internet access, as well
as on any multiple or discriminatory State and local taxes on
Internet-based transactions. In 2001, Congress voted to amend
the ITFA by extending the tax moratorium through November 1,
2003, under the Internet Tax Nondiscrimation Act (H.R. 1552).
The extension was enacted on November 28, 2001 (P.L. 107-075).
The House of Representatives Judiciary Committee reported
H.R. 49, the Internet Tax Nondiscrimination Act, to the full
House of Representatives on July 17, 2003. H.R. 49 would extend
permanently the moratorium on Internet access taxes and on
discriminatory and multiple taxes on e-commerce transactions.
The only amendment to H.R. 49 that was approved by the House of
Representatives Judiciary Committee clarifies that States and
localities cannot tax any form of Internet access, including
certain telecommunications services under particular
circumstances. Specifically, the amendment would insert ``,
except to the extent such services are used to provide Internet
access'' to the language in the ITFA that permits States and
localities to continue taxing telecommunications services. On
September 17, 2003, by voice vote, the full House of
Representatives approved H.R. 49 as reported by the House of
Representatives Judiciary Committee.
Senator Wyden introduced a companion bill to H.R. 49, S. 52,
the Internet Tax Nondiscrimination Act of 2003, on January 7,
2003. Senator Allen introduced S. 150 shortly thereafter on
January 13, 2003. Both S. 52 and S. 150 would amend the ITFA to
establish a permanent Internet tax moratorium and eliminate,
after three years, the grandfathering protection for States
that imposed Internet access taxes prior to the passage of the
ITFA.
On July 16, 2003, the Committee held a full Committee hearing
on S. 150 and S. 52. The following individuals testified at the
hearing: Joseph Ripp, Vice Chairman, America Online, Inc.; Paul
Misener, Vice President for Global Public Policy, Amazon.com,
Inc.; Billy Hamilton, Deputy Comptroller, Texas Comptroller of
Public Accounts; and Mark Beshears, Assistant Vice President of
State and Local Tax, Sprint Corporation.
On July 31, 2003, the Committee held an executive session at
which it considered S. 150. The bill was ordered reported by a
voice vote with an amendment in the nature of a substitute co-
sponsored by Senators Allen, Brownback, Stevens, Sununu, and
Wyden.
Estimated Costs
In accordance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate and section 403 of the
Congressional Budget Act of 1974, the Committee provides the
following cost estimate, prepared by the Congressional Budget
Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 9, 2003.
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. 150, the Internet
Tax Nondiscrimination Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Sarah Puro.
Sincerely,
Douglas Holtz-Eakin,
Director.
Enclosure.
S. 150--Internet Tax Nondiscrimination Act
Summary: S. 150 would permanently extend a moratorium on
certain state and local taxation of online services and
electronic commerce, and after October 1, 2006, would eliminate
an exception to that prohibition for certain states. Under
current law, the moratorium is set to expire on November 1,
2003. CBO estimates that enacting S. 150 would have no impact
on the federal budget, but beginning in 2007, it would impose
significant annual costs on some state and local governments.
By extending and expanding the moratorium on certain types
of state and local taxes, S. 150 would impose an
intergovernmental mandate as defined in the Unfunded Mandates
Reform Act (UMRA). CBO estimates that the mandate would cause
state and local governments to lose revenue beginning in
October 2006; those losses would exceed the threshold
established in UMRA ($64 million in 2007, adjusted annually for
inflation) by 2007. While there is some uncertainty about the
number of states affected, CBO estimates that the direct costs
to states and local governments would probably total between
$80 million and $120 million annually, beginning in 2007. The
bill contains no new private-sector mandates as defined in
UMRA.
Estimated cost to the Federal Government: CBO estimates
that enacting S. 150 would have no impact on the federal
budget.
Intergovernmental mandates contained in the bill: The
Internet Tax Freedom Act (ITFA) currently prohibits state and
local governments from imposing taxes on Internet access until
November 1, 2003. The ITFA, enacted as Public Law 105-277 on
October 21, 1998, also contains an exception to this
moratorium, sometimes referred to as the ``grandfather
clause,'' which allows certain state and local governments to
tax Internet access if such tax was generally imposed and
actually enforced prior to October 1, 1998.
S. 150 would make the moratorium permanent and, after
October 1, 2006, would eliminate the grandfather clause. The
bill also would state that the term ``Internet access'' or
``Internet access services'' as defined in ITFA would not
include telecommunications services except to the extent that
such services are used to provide Internet access (known as
``aggregating'' or ``bundling'' of services). These extensions
and expansions of the moratorium constitute intergovernmental
mandates as defined in UMRA because they would prohibit states
from collecting taxes that they otherwise could collect.
Estimated direct costs of mandates to state and local
governments: CBO estimates that repealing the grandfather
clause would result in revenue losses for as many as 10 states
and for several local governments totaling between $80 million
and $120 million annually, beginning in 2007. We also estimate
that the change in the definition of Internet access could
affect tax revenues for many states and local governments, but
we cannot estimate the magnitude or the timing of any such
additional impacts at this time.
UMRA includes in its definition of the direct costs of a
mandate the amounts that state and local governments would be
prohibited from raising in revenues to comply with the mandate.
The direct costs of eliminating the grandfather clause would be
the tax revenues that state and local governments are currently
collecting but would be precluded from collecting under S. 150.
States also could lose revenues that they currently collect on
certain services, if those services are redefined as Internet
access under the bill.
Over the next five years there will likely be changes in
the technology and the market for Internet access. Such changes
are likely to affect, at minimum, the price for access to the
Internet as well as the demand for and the methods of such
access. How these technological and market changes will
ultimately affect state and local tax revenues is unclear, but
for the purposes of this estimate, CBO assumes that over the
next five years, these effects will largely offset each other,
keeping revenues from taxes on Internet access within the
current range.
The grandfather clause
The primary budget impact of this bill would be the revenue
losses--starting in October 2006--resulting from eliminating
the grandfather clause that currently allows some state and
local governments to collect taxes on Internet access. While
there is some uncertainty about the number of jurisdictions
currently collecting such taxes--and the precise amount of
those collections--CBO believes that as many as 10 states
(Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South
Dakota, Tennessee, Texas, Washington, Wisconsin) and several
local jurisdictions in Colorado, Ohio, South Dakota, Texas,
Washington, and Wisconsin are currently collecting such taxes
and that these taxes total between $80 million and $120 million
annually. This estimate is based on information from the states
involved, from industry sources, and from the Department of
Commerce. In arriving at this estimate, CBO took into account
the fact that some companies are challenging the applicability
of the tax to the service they provide and thus may not be
collecting or remitting the taxes even though the states feel
they are obligated to do so. Such potential liabilities are not
included in the estimate.
It is possible that if the moratorium were allowed to
expire as scheduled under current law, some state and local
governments would enact new taxes or decide to apply existing
taxes to Internet access during the next five years. It is also
possible that some governments would repeal existing taxes or
preclude their application to these services. Because such
changes are difficult to predict, for the purposes of
estimating the direct costs of the mandate, CBO considered only
the revenues from taxes that are currently in place and
actually being collected.
Definition of Internet access
Depending on how the language altering the definition of
what telecommunications services are taxable is interpreted,
that language also could result in substantial revenue losses
for states and local governments. It is possible that states
could lose revenue if services that are currently taxed are
redefined as Internet ``access'' under the definition in S.
150. Revenues could also be lost if Internet access providers
choose to bundle products and call the product Internet access.
Such changes would reduce state and local revenues from
telecommunications taxes and possibly revenues from content
currently subject to sales and use taxes. However, CBO cannot
estimate the magnitude of these losses.
Estimated impact on the private sector: This bill would
impose no new private-sector mandates as defined in UMRA.
Previous CBO estimate: On July 21, 2003, CBO transmitted a
cost estimate for H.R. 49, the Internet Tax Nondiscrimination
Act, as ordered reported by the House Committee on the
Judiciary on July 16, 2003. Unlike H.R. 49, which would
eliminate the grandfather clause upon passage, S. 150 would
allow the grandfather clause to remain in effect until October
2006. Thus, while both bills contain an intergovernmental
mandate with costs above the threshold, the enactment of S. 150
would not result in revenue losses to states until October
2006.
Estimate prepared by: Impact on State, Local, and Tribal
Governments: Sarah Puro. Federal Costs: Melissa Zimmerman.
Impact on the Private Sector: Paige Piper/Bach.
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
S. 150 would extend permanently the current Internet tax
moratorium under the ITFA. The revised definition of Internet
access under the bill, as reported, would clarify that the
definition of Internet access is meant to include all forms of
Internet access, regardless of the medium by which such access
is provided. However, the measure is not expected to have an
effect on the number of persons regulated.
ECONOMIC IMPACT
S. 150 would preserve State and local taxing authorities'
ability to impose traditional sales and use taxes, excise
taxes, property taxes, corporate income taxes, gross receipt
taxes, business and occupational taxes, and other such taxes
that are generally applied and are not enumerated in section
1101(a) of the ITFA. Because these taxes make up the vast
majority of State and local tax revenues, any adverse economic
impact that the moratorium would have on States is expected to
be relatively minimal. S. 150, as amended, would terminate the
current grandfather clause after three years; therefore, after
that time the States that are currently grandfathered may lose
collectively between $80 million and $120 million in annual
revenues beginning in 2007, according to CBO's initial analysis
of S. 150.
It is expected that S. 150 would continue to facilitate the
growth of e-commerce and to encourage increasing numbers of
Americans to access the Internet via various technological
means. Accordingly, the permanent extension of the Internet tax
moratorium is expected to create benefits for the economy.
PRIVACY
S. 150 is not expected to have an adverse effect on the
personal privacy of any individuals that will be impacted by
this legislation.
PAPERWORK
S. 150 would have a minimal impact on current paperwork
levels.
Section-by-Section Analysis
Section 1. Short title
This section provides that the bill may be cited as the
``Internet Tax Non-discrimination Act''.
Section 2. Permanent extension of Internet Tax Freedom Act moratorium
This section would extend permanently the current Federal
moratorium on State and local Internet access taxes and on
State and local multiple or discriminatory taxes on e-commerce.
In addition, this section would make certain changes to the
ITFA relating to the permanent extension of the tax moratorium.
Significantly, this section also would amend the definitions of
``Internet access'' and ``Internet access service'' contained
in the ITFA by adding ``, except to the extent such services
are used to provide Internet access'' at the end of the second
sentence of each of sections 1101(e)(3)(D) and 1104(5) of the
ITFA. Those sentences would thus read, ``Such term does not
include telecommunications services, except to the extent such
services are used to provide Internet access.'' \1\
---------------------------------------------------------------------------
\1\ Though this report focuses specifically on the modified
definition of ``Internet access,'' the discussion of that modified
definition generally applies also to the modified definition of
``Internet access service.''
---------------------------------------------------------------------------
The permanent extension of the moratorium is consistent with
the majority view of the Advisory Commission on Electronic
Commerce (ACEC) established pursuant to the ITFA that the
current moratorium on Internet access taxes should be extended
permanently.
Section 3. Three-year sunset for pre-October 1998, tax exception
This section would extend by three years, from October 1,
2003, the current grandfathering provision that permits States
that imposed or enforced a tax on Internet access prior to
October 1, 1998, to continue taxing Internet access.
Thereafter, the grandfathering protection would be eliminated.
The elimination of the grandfathering protection is
consistent with the majority view of the ACEC that the
grandfathering protection of the ITFA should be abolished.
Section 4. Universal service
This section states that nothing in the ITFA shall prevent
the imposition or collection of any fees or charges used to
preserve and advance universal service or similar State
programs authorized by section 254 of the Communications Act of
1934.
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):
Internet Tax Freedom Act.
[Pub. L. 105-277, Div. C, Title XI, 112 Stat. 2681-719; as
amended by Pub. L. 107-75, 115 Stat. 703 (47 U.S.C. 151 nt)]
SEC. 1100. SHORT TITLE.
This title may be cited as the ``Internet Tax Freedom Act''.
SEC. 1101. MORATORIUM.
[(a) Moratorium.--No State or political subdivision thereof
shall impose any of the following taxes during the period
beginning on October 1, 1998, and ending on November 1, 2003--
[(1) taxes on Internet access, unless such tax was
generally imposed and actually enforced prior to
October 1, 1998; and
[(2) multiple or discriminatory taxes on electronic
commerce.]
(a) Moratorium.--No State or political subdivision thereof
may impose any of the following taxes:
(1) Taxes on Internet access.
(2) Multiple or discriminatory taxes on electronic
commerce.
(b) Preservation of State and Local Taxing Authority.--Except
as provided in this section, nothing in this title shall be
construed to modify, impair, or supersede, or authorize the
modification, impairment, or superseding of, any State or local
law pertaining to taxation that is otherwise permissible by or
under the Constitution of the United States or other Federal
law and in effect on the date of enactment of this Act.
(c) Liabilities and Pending Cases.--Nothing in this title
affects liability for taxes accrued and enforced before the
date of enactment of this Act, nor does this title affect
ongoing litigation relating to such taxes.
[(d) Definition of Generally Imposed and Actually Enforced.--
For purposes of this section, a tax has been generally imposed
and actually enforced prior to October 1, 1998, if, before that
date, the tax was authorized by statute and either--
[(1) a provider of Internet access services had a
reasonable opportunity to know by virtue of a rule or
other public proclamation made by the appropriate
administrative agency of the State or political
subdivision thereof, that such agency has interpreted
and applied such tax to Internet access services; or
[(2) a State or political subdivision thereof
generally collected such tax on charges for Internet
access.]
[(e)](d) Exception to Moratorium.--
(1) In general.--Subsection (a) shall also not apply
in the case of any person or entity who knowingly and
with knowledge of the character of the material, in
interstate or foreign commerce by means of the World
Wide Web, makes any communication for commercial
purposes that is available to any minor and that
includes any material that is harmful to minors unless
such person or entity has restricted access by minors
to material that is harmful to minors--
(A) by requiring use of a credit card, debit
account, adult access code, or adult personal
identification number;
(B) by accepting a digital certificate that
verifies age; or
(C) by any other reasonable measures that are
feasible under available technology.
(2) Scope of exception.--For purposes of paragraph
(1), a person shall not be considered to making a
communication for commercial purposes of material to
the extent that the person is--
(A) a telecommunications carrier engaged in the
provision of a telecommunications service;
(B) a person engaged in the business of providing an
Internet access service;
(C) a person engaged in the business of providing an
Internet information location tool; or
(D) similarly engaged in the transmission, storage,
retrieval, hosting, formatting, or translation (or any
combination thereof) of a communication made by another
person, without selection or alteration of the
communication.
(3) Definitions.--In this subsection:
(A) By means of the world wide web.--The term
``by means of the World Wide Web'' means by
placement of material in a computer server-
based file archive so that it is publicly
accessible, over the Internet, using hypertext
transfer protocol, file transfer protocol, or
other similar protocols.
(B) Commercial purposes; engaged in the
business.--
(i) Commercial purposes.--A person
shall be considered to make a
communication for commercial purposes
only if such person is engaged in the
business of making such communications.
(ii) Engaged in the business.--The
term ``engaged in the business'' means
that the person who makes a
communication, or offers to make a
communication, by means of the World
Wide Web, that includes any material
that is harmful to minors, devotes
time, attention, or labor to such
activities, as a regular course of such
person's trade or business, with the
objective of earning a profit as a
result of such activities (although it
is not necessary that the person make a
profit or that the making or offering
to make such communications be the
person's sole or principal business or
source of income). A person may be
considered to be engaged in the
business of making, by means of the
World Wide Web, communications for
commercial purposes that include
material that is harmful to minors,
only if the person knowingly causes the
material that is harmful to minors to
be posted on the World Wide Web or
knowingly solicits such material to be
posted on the World Wide Web.
(C) Internet.--The term ``Internet'' means
collectively the myriad of computer and
telecommunications facilities, including
equipment and operating software, which
comprise the interconnected world-wide network
of networks that employ the Transmission
Control Protocol/Internet Protocol, or any
predecessor or successor protocols to such
protocol, to communicate information of all
kinds by wire or radio.
(D) Internet access service.--The term
``Internet access service'' means a service
that enables users to access content,
information, electronic mail, or other services
offered over the Internet and may also include
access to proprietary content, information, and
other services as part of a package of services
offered to consumers. Such term does not
include telecommunications [services.]
services, except to the extent such services
are used to provide Internet access.
(E) Internet information location tool.--The
term ``Internet information location tool''
means a service that refers or links users to
an online location on the World Wide Web. Such
term includes directories, indices, references,
pointers, and hypertext links.
(F) Material that is harmful to minors.--The
term ``material that is harmful to minors''
means any communication, picture, image,
graphic image file, article, recording,
writing, or other matter of any kind that is
obscene or that--
(i) the average person, applying
contemporary community standards, would
find, taking the material as a whole
and with respect to minors, is designed
to appeal to, or is designed to pander
to, the prurient interest;
(ii) depicts, describes, or
represents, in a manner patently
offensive with respect to minors, an
actual or simulated sexual act or
sexual contact, an actual or simulated
normal or perverted sexual act, or a
lewd exhibition of the genitals or
post-pubescent female breast; and
(iii) taken as a whole, lacks serious
literary, artistic, political, or
scientific value for minors.
(G) Minor.--The term ``minor'' means any
person under 17 years of age.
(H) Telecommunications carrier;
telecommunications service.--The terms
``telecommunications carrier'' and
``telecommunications service'' have the
meanings given such terms in section 3 of the
Communications Act of 1934 (47 U.S.C. 153).
(f) Additional Exception to Moratorium.--
(1) In general.--Subsection (a) shall also not apply
with respect to an Internet access provider, unless, at
the time of entering into an agreement with a customer
for the provision of Internet access services, such
provider offers such customer (either for a fee or at
no charge) screening software that is designed to
permit the customer to limit access to material on the
Internet that is harmful to minors.
(2) Definitions.--In this subsection:
(A) Internet access provider.--The term
``Internet access provider'' means a person
engaged in the business of providing a computer
and communications facility through which a
customer may obtain access to the Internet, but
does not include a common carrier to the extent
that it provides only telecommunications
services.
(B) Internet access services.--The term
``Internet access services'' means the
provision of computer and communications
services through which a customer using a
computer and a modem or other communications
device may obtain access to the Internet, but
does not include telecommunications services
provided by a common carrier.
(C) Screening software.--The term ``screening
software'' means software that is designed to
permit a person to limit access to material on
the Internet that is harmful to minors.
(3) Applicability.--Paragraph (1) shall apply to
agreements for the provision of Internet access
services entered into on or after the date that is 6
months after the date of enactment of this Act.
* * * * * * *
SEC. 1104. PRESERVATION OF PRE-OCTOBER, 1998, STATE AND LOCAL TAX
AUTHORITY UNTIL 2006.
(a) In General.--Section 1101(a) does not apply to a tax on
Internet access that was generally imposed and actually
enforced prior to October 1, 1998, if, before that date, the
tax was authorized by statute and either--
(1) a provider of Internet access services had a
reasonable opportunity to know by virtue of a rule or
other public proclamation made by the appropriate
administrative agency of the State or political
subdivision thereof, that such agency has interpreted
and applied such tax to Internet access services; or
(2) a State or political subdivision thereof
generally collected such tax on charges for Internet
access.
(b) Termination.--This section shall not apply after October
1, 2006.
(c) Tax on Internet Access.--Notwithstanding section
1105(10), in this section the term `tax on Internet access'
includes the enforcement or application of any preexisting tax
on the sale or use of Internet services if that tax was
generally imposed and actually enforced prior to October 1,
1998.
SEC. [1104.] 1105. DEFINITIONS.
For the purposes of this title:
(1) Bit tax.--The term ``bit tax'' means any tax on
electronic commerce expressly imposed on or measured by
the volume of digital information transmitted
electronically, or the volume of digital information
per unit of time transmitted electronically, but does
not include taxes imposed on the provision of
telecommunications services.
(2) Discriminatory tax.--The term ``discriminatory
tax'' means--
(A) any tax imposed by a State or political
subdivision thereof on electronic commerce
that--
(i) is not generally imposed and
legally collectible by such State or
such political subdivision on
transactions involving similar
property, goods, services, or
information accomplished through other
means;
(ii) is not generally imposed and
legally collectible at the same rate by
such State or such political
subdivision on transactions involving
similar property, goods, services, or
information accomplished through other
means, unless the rate is lower as part
of a phase-out of the tax over not more
than a 5-year period;
(iii) imposes an obligation to
collect or pay the tax on a different
person or entity than in the case of
transactions involving similar
property, goods, services, or
information accomplished through other
means;
(iv) establishes a classification of
Internet access service providers or
online service providers for purposes
of establishing a higher tax rate to be
imposed on such providers than the tax
rate generally applied to providers of
similar information services delivered
through other means; or
(B) any tax imposed by a State or political
subdivision thereof, if--
(i) [except with respect to a tax (on
Internet access) that was generally
imposed and actually enforced prior to
October 1, 1998,] the sole ability to
access a site on a remote seller's out-
of-State computer server is considered
a factor in determining a remote
seller's tax collection obligation; or
(ii) a provider of Internet access
service or online services is deemed to
be the agent of a remote seller for
determining tax collection obligations
solely as a result of--
(I) the display of a remote
seller's information or content
on the out-of-State computer
server of a provider of
Internet access service or
online services; or
(II) the processing of orders
through the out-of-State
computer server of a provider
of Internet access service or
online services.
(3) Electronic commerce.--The term ``electronic
commerce'' means any transaction conducted over the
Internet or through Internet access, comprising the
sale, lease, license, offer, or delivery of property,
goods, services, or information, whether or not for
consideration, and includes the provision of Internet
access.
(4) Internet.--The term ``Internet'' means
collectively the myriad of computer and
telecommunications facilities, including equipment and
operating software, which comprise the interconnected
world-wide network of networks that employ the
Transmission Control Protocol/Internet Protocol, or any
predecessor or successor protocols to such protocol, to
communicate information of all kinds by wire or radio.
(5) Internet access.--The term ``Internet access''
means a service that enables users to access content,
information, electronic mail, or other services offered
over the Internet, and may also include access to
proprietary content, information, and other services as
part of a package of services offered to users. Such
term does not include telecommunications [services.]
services, except to the extent such services are used
to provide Internet access.
(6) Multiple tax.--
(A) In general.--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 subject to another tax imposed by
another State or political subdivision thereof
(whether or not at the same rate or on the same
basis), without a credit (for example, a resale
exemption certificate) for taxes paid in other
jurisdictions.
(B) Exception.--Such term shall not include a
sales or use tax imposed by a State and 1 or
more political subdivisions thereof on the same
electronic commerce or a tax on persons engaged
in electronic commerce which also may have been
subject to a sales or use tax thereon.
(C) Sales or use tax.--For purposes of
subparagraph (B), the term ``sales or use tax''
means a tax that is imposed on or incident to
the sale, purchase, storage, consumption,
distribution, or other use of tangible personal
property or services as may be defined by laws
imposing such tax and which is measured by the
amount of the sales price or other charge for
such property or service.
(7) State.--The term ``State'' means any of the
several States, the District of Columbia, or any
commonwealth, territory, or possession of the United
States.
(8) Tax.--
(A) In general.--The term ``tax'' means--
(i) any charge imposed by any
governmental entity for the purpose of
generating revenues for governmental
purposes, and is not a fee imposed for
a specific privilege, service, or
benefit conferred; or
(ii) the imposition on a seller of an
obligation to collect and to remit to a
governmental entity any sales or use
tax imposed on a buyer by a
governmental entity.
(B) Exception.--Such term does not include
any franchise fee or similar fee imposed by a
State or local franchising authority, pursuant
to section 622 or 653 of the Communications Act
of 1934 (47 U.S.C. 542, 573), or any other fee
related to obligations or telecommunications
carriers under the Communications Act of 1934
(47 U.S.C. 151 et seq.).
(9) Telecommunications service.--The term
``telecommunications service'' has the meaning given
such term in section 3(46) of the Communications Act of
1934 (47 U.S.C. 153(46)) and includes communications
services (as defined in section 4251 of the Internal
Revenue Code of 1986).
(10) Tax on internet access.--The term ``tax on
Internet access'' means a tax on Internet access,
including the enforcement or application of any new or
preexisting tax on the sale or use of Internet
[services unless such tax was generally imposed and
actually enforced prior to October 1, 1998.] services.