The Internet Tax Freedom Act
The Internet Tax Freedom Act (formerly known as S.442, now Title
XI of P.L. 105-277, the Omnibus Appropriations Act of 1998),
reproduced below, establishes the Advisory Commission on
Electronic Commerce.
TITLE XI--MORATORIUM ON CERTAIN TAXES
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 3 years after the date
of the enactment of this Act--
(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.
(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) 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.
(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. 1102. ADVISORY COMMISSION ON
ELECTRONIC COMMERCE.
(a) Establishment of Commission.--There is established
a commission to be known as the Advisory Commission on Electronic
Commerce (in this title referred to as the ``Commission''). The
Commission shall-- (1) be composed of 19 members appointed in
accordance with subsection (b), including the chairperson who
shall be selected by the members of the Commission from among
themselves; and (2) conduct its business in accordance with the
provisions of this title.
(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) 3 representatives from the Federal Government, comprised
of the Secretary of Commerce, the Secretary of the Treasury,
and the United States Trade Representative (or their respective
delegates).
(B) 8 representatives from State and local governments (one
such representative shall be from a State or local government
that does not impose a sales tax and one representative shall
be from a State that does not impose an income tax).
(C) 8 representatives of the electronic commerce industry
(including small business), telecommunications carriers, local
retail businesses, and consumer groups, comprised of--
(i) 5 individuals appointed by the Majority Leader of the
Senate;
(ii) 3 individuals appointed by the Minority Leader of the
Senate;
(iii) 5 individuals appointed by the Speaker of the House
of Representatives; and
(iv) 3 individuals appointed by the Minority Leader of the
House of Representatives.
(2) Appointments.--Appointments to the Commission shall be
made not later than 45 days after the date of the enactment of
this Act. The chairperson shall be selected not later than 60
days after the date of the enactment of this Act.
(3) Vacancies.--Any vacancy in the Commission shall not affect
its powers, but shall be filled in the same manner as the original
appointment.
(c) Acceptance of Gifts and Grants.--The Commission
may accept, use, and dispose of gifts or grants of services or
property, both real and personal, for purposes of aiding or facilitating
the work of the Commission. Gifts or grants not used at the expiration
of the Commission shall be returned to the donor or grantor.
(d) Other Resources.--The Commission shall have reasonable
access to materials, resources, data, and other information from
the Department of Justice, the Department of Commerce, the Department
of State, the Department of the Treasury, and the Office of the
United States Trade Representative. The Commission shall also
have reasonable access to use the facilities of any such Department
or Office for purposes of conducting meetings.
(e) Sunset.--The Commission shall terminate 18 months
after the date of the enactment of this Act.
(f) Rules of the Commission.--
(1) Quorum.--Nine members of the Commission shall constitute
a quorum for conducting the business of the Commission.
(2) Meetings.--Any meetings held by the Commission shall be
duly noticed at least 14 days in advance and shall be open to
the public.
(3) Opportunities to testify.--The Commission shall provide
opportunities for representatives of the general public, taxpayer
groups, consumer groups, and State and local government officials
to testify.
(4) Additional rules.--The Commission may adopt other rules
as needed.
(g) Duties of the Commission.--
(1) In general.--The Commission shall conduct a thorough study
of Federal, State and local, and international taxation and tariff
treatment of transactions using the Internet and Internet access
and other comparable intrastate, interstate or international
sales activities.
(2) Issues to be studied.--The Commission may include in the
study under subsection (a)--
(A) an examination of--
(i) barriers imposed in foreign markets on United States providers
of property, goods, services, or information engaged in electronic
commerce and on United States providers of telecommunications
services; and
(ii) how the imposition of such barriers will affect
United States consumers, the competitiveness of United States
citizens providing property, goods, services, or information
in foreign markets, and the growth and maturing of the Internet;
(B) an examination of the collection and administration of
consumption taxes on electronic commerce in other countries and
the United States, and the impact of such collection on the global
economy, including an examination of the relationship between
the collection and administration of such taxes when the transaction
uses the Internet and when it does not;
(C) an examination of the impact of the Internet and Internet
access (particularly voice transmission) on the revenue base
for taxes imposed under section 4251 of the Internal Revenue
Code of 1986;
(D) an examination of model State legislation that--
(i) would provide uniform definitions of categories of property,
goods, service, or information subject to or exempt from sales
and use taxes; and
(ii) would ensure that Internet access services, online services,
and communications and transactions using the Internet, Internet
access service, or online services would be treated in a tax
and technologically neutral manner relative to other forms of
remote sales;
(E) an examination of the effects of taxation, including the
absence of taxation, on all interstate sales transactions, including
transactions using the Internet, on retail businesses and on
State and local governments, which examination may include a
review of the efforts of State and local governments to collect
sales and use taxes owed on in-State purchases from out-of-State
sellers; and
(F) the examination of ways to simplify Federal and State
and local taxes imposed on the provision of telecommunications
services.
(3) Effect on the Communications Act of 1934.--Nothing in
this section shall include an examination of any fees or charges
imposed by the Federal Communications Commission or States related
to--
(A) obligations under the Communications Act of 1934 (47 U.S.C.
151 et seq.); or
(B) the implementation of the Telecommunications Act of 1996
(or of amendments made by that Act).
(h) National Tax Association Communications and Electronic
Commerce Tax Project.--The Commission shall, to the extent possible,
ensure that its work does not undermine the efforts of the National
Tax Association Communications and Electronic Commerce Tax Project.
SEC. 1103. REPORT.
Not later than 18 months after the date of the enactment of
this Act, the Commission shall transmit to Congress for its consideration
a report reflecting the results, including such legislative recommendations
as required to address the findings of the Commission's study
under this title. Any recommendation agreed to by the Commission
shall be tax and technologically neutral and apply to all forms
of remote commerce. No finding or recommendation shall be included
in the report unless agreed to by at least two-thirds of the
members of the Commission serving at the time the finding or
recommendation is made.
SEC. 1104. 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.
(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.
TITLE XII--OTHER PROVISIONS
SEC. 1201. DECLARATION THAT INTERNET
SHOULD BE FREE OF NEW FEDERAL TAXES.
It is the sense of Congress that no new Federal taxes similar
to the taxes described in section 1101(a) should be enacted with
respect to the Internet and Internet access during the moratorium
provided in such section.
SEC. 1202. NATIONAL TRADE ESTIMATE.
Section 181 of the Trade Act of 1974 (19 U.S.C. 2241) is amended--
(1) in subsection (a)(1)--
(A) in subparagraph (A)--
(i) by striking ``and'' at the end of clause (i);
(ii) by inserting ``and'' at the end of clause (ii); and
(iii) by inserting after clause (ii) the following new clause:
``(iii) United States electronic commerce,''; and
(B) in subparagraph (C)--
(i) by striking ``and'' at the end of clause (i);
(ii) by inserting ``and'' at the end of clause (ii);
(iii) by inserting after clause (ii) the following new clause:
``(iii) the value of additional United States electronic commerce,'';
and
(iv) by inserting ``or transacted with,'' after ``or invested
in'';
(2) in subsection (a)(2)(E)--
(A) by striking ``and'' at the end of clause (i);
(B) by inserting ``and'' at the end of clause (ii); and
(C) by inserting after clause (ii) the following new clause:
``(iii) the value of electronic commerce transacted with,'';
and
(3) by adding at the end the following new subsection: ``(d)
Electronic Commerce.--For purposes of this section, the term
`electronic commerce' has the meaning given that term in section
1104(3) of the Internet Tax Freedom Act.''.
SEC. 1203. DECLARATION THAT THE INTERNET SHOULD BE
FREE OF FOREIGN TARIFFS, TRADE BARRIERS, AND OTHER RESTRICTIONS.
(a) In General.--It is the sense of Congress that the
President should seek bilateral, regional, and multilateral agreements
to remove barriers to global electronic commerce through the
World Trade Organization, the Organization for Economic Cooperation
and Development, the Trans-Atlantic Economic Partnership, the
Asia Pacific Economic Cooperation forum, the Free Trade Area
of the America, the North American Free Trade Agreement, and
other appropriate venues.
(b) Negotiating Objectives.--The negotiating objectives
of the United States shall be--
(1) to assure that electronic commerce is free from--
(A) tariff and nontariff barriers;
(B) burdensome and discriminatory regulation and standards;
and
(C) discriminatory taxation; and
(2) to accelerate the growth of electronic commerce by expanding
market access opportunities for--
(A) the development of telecommunications infrastructure;
(B) the procurement of telecommunications equipment;
(C) the provision of Internet access and telecommunications
services; and
(D) the exchange of goods, services, and digitalized information.
(c) Electronic Commerce.--For purposes of this section,
the term ``electronic commerce'' has the meaning given that term
in section 1104(3).
SEC. 1204. NO EXPANSION OF TAX AUTHORITY.
Nothing in this title shall be construed to expand the duty
of any person to collect or pay taxes beyond that which existed
immediately before the date of the enactment of this Act.
SEC. 1205. PRESERVATION OF AUTHORITY.
Nothing in this title shall limit or otherwise affect the
implementation of the Telecommunications Act of 1996 (Public
Law 104-104) or the amendments made by such Act.
SEC. 1206. SEVERABILITY.
If any provision of this title, or any amendment made by this
title, or the application of that provision to any person or
circumstance, is held by a court of competent jurisdiction to
violate any provision of the Constitution of the United States,
then the other provisions of that title, and the application
of that provision to other persons and circumstances, shall not
be affected
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