To make permanent the moratorium enacted by the Internet Tax Freedom Act, and for other purposes.

Summary: Internet Tax Fairness Act of 2001 - Amends the Internet Tax Freedom Act to make the three-year moratorium on State and local taxation of the Internet permanent.Revises Federal law provisions concerning state taxation of income from interstate commerce to prohibit, as a general rule, a State or subdivision thereof imposing a business activity tax on any person relating to such person's activities that affect interstate commerce, unless such person has a substantial physical presence in such State or subdivision. Defines a substantial physical presence.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Internet Tax Fairness Act of 2001''.

SEC. 2. PERMANENT EXTENSION OF INTERNET TAX FREEDOM ACT MORATORIUM.

    (a) Permanent Extension; Internet Access Taxes.--Section 1101 of 
the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended--
            (1) by striking ``taxes during the period beginning on 
        October 1, 1998, and ending 3 years after the date of the 
        enactment of this Act--'' and inserting ``taxes after September 
        30, 1998:'';
            (2) by striking paragraph (1) of subsection (a) and 
        inserting the following:
            ``(1) Taxes on Internet access.'',
            (3) by striking ``multiple'' in paragraph (2) of subsection 
        (a) and inserting ``Multiple'';
            (4) by striking subsection (d); and
            (5) by redesignating subsections (e) and (f) as subsections 
        (d) and (e), respectively.
    (b) Conforming Amendment.--Section 1104(10) of the Internet Tax 
Freedom Act (47 U.S.C. 151 note) is amended by striking ``unless'' and 
all that follows through ``1998''.

SEC. 3. JURISDICTIONAL STANDARDS FOR THE IMPOSITION OF STATE AND LOCAL 
              BUSINESS ACTIVITY TAXES ON INTERSTATE COMMERCE.

    Title I of the Act entitled ``An Act relating to the power of the 
States to impose net income taxes on income derived from interstate 
commerce, and authorizing studies by congressional committees of 
matters pertaining thereto'', approved on September 14, 1959 (Public 
Law 86-272; 15 U.S.C. 381 et seq.), is amended to read as follows:

                  ``TITLE I--JURISDICTIONAL STANDARDS

``SEC. 101. IMPOSITION OF STATE AND LOCAL BUSINESS ACTIVITY TAXES ON 
              INTERSTATE COMMERCE.

    ``(a) In General.--No State or subdivision thereof shall have power 
to impose, for any taxable year ending after the date of enactment of 
this title, a business activity tax on any person relating to such 
person's activities that affect interstate commerce, unless such person 
has a substantial physical presence in such State or subdivision. A 
substantial physical presence is not established if the only business 
activities within such State or subdivision by or on behalf of such 
person during such taxable year are any or all of the following:
            ``(1) The solicitation of orders or contracts by such 
        person or such person's representative in such State or 
        subdivision for sales of tangible or intangible personal 
        property or services, which orders or contracts are approved or 
        rejected outside the State, or subdivision and, if approved, 
        are fulfilled by shipment or delivery of such property from a 
        point outside the State or subdivision or by the performance of 
        such services outside the State or subdivision.
            ``(2) The solicitation of orders or contracts by such 
        person or such person's representative in such State or 
        subdivision in the name of or for the benefit of a prospective 
        customer of such person, if orders or contracts by such 
        customer to such person to enable such customer to fill orders 
        or contracts resulting from such solicitation are orders or 
        contracts described in paragraph (1).
            ``(3) The presence or use of intangible personal property 
        in such State or subdivision, including patents, copyrights, 
        trademarks, logos, securities, contracts, licenses and permits 
        issued by any governmental agency or authority authorizing the 
        holder to conduct any business activity, money, deposits, 
        loans, electronic or digital signals, and web pages, whether or 
        not subject to licenses, franchises, or other agreements.
            ``(4) The use of the Internet to create or maintain a World 
        Wide Web site accessible by persons in such State or 
        subdivision.
            ``(5) The use of an Internet service provider, on-line 
        service provider, internetwork communication service provider, 
        or other Internet access service provider, or World Wide Web 
        hosting services to maintain or take and process orders via a 
        web page or site on a computer that is physically located in 
        such State or subdivision.
            ``(6) The use of any service provider for transmission of 
        communications, whether by cable, satellite, radio, 
        telecommunications, or other similar system.
            ``(7) The leasing or owning of substantial property in such 
        State or subdivision for less than 30 days. Property in such 
        State or subdivision for purposes of being assembled, 
        manufactured, processed, or tested by a person or persons 
        within such State or subdivision for the benefit of the owner 
        or lessee, or used to furnish a service by a person or persons 
        within such State or subdivision to the owner or lessee, shall 
        be disregarded in determining whether such 30-day limit has 
        been exceeded.
            ``(8) The assigning of employees, representatives, or 
        agents in such State or subdivision for less than 30 days. 
        Presence of employees, representatives or agents for purposes 
        directly relating to the purchasing goods or services, 
        gathering news and covering events, meeting with government 
        officials, attending conferences, seminars and similar 
        functions, and participating in charitable activities shall be 
disregarded in determining whether such 30-day limit has been exceeded.
            ``(9) The affiliation with another person located in the 
        State or subdivision, unless--
                    ``(A) the other person located in the State or 
                subdivision is the person's agent under the terms and 
                conditions of subsection (d); and
                    ``(B) the activity of the other person in the State 
                or subdivision constitutes substantial physical 
                presence under this subsection and is performed to 
                establish, enhance, or maintain the market in the State 
                or subdivision for the person.
            ``(10) The use of an unaffiliated representative or 
        independent contractor in such State or subdivision for the 
        purpose of performing warranty or repair services with respect 
        to tangible or intangible personal property sold by a person 
        located outside the State or subdivision.
    ``(b) Domestic Corporations; Persons Domiciled in or Residents of a 
State.--The provisions of subsection (a) shall not apply to the 
imposition of a business activity tax by any State or subdivision 
thereof with respect to--
            ``(1) any corporation which is incorporated under the laws 
        of such State; or
            ``(2) any individual who, under the laws of such State, is 
        domiciled in, or a resident of, such State.
    ``(c) Sales or Solicitation of Orders or Contracts for Sales by 
Independent Contractors.--For purposes of subsection (a), a person 
shall not be considered to have engaged in business activities within a 
State or subdivision thereof during any taxable year merely by reason 
of sales of tangible or intangible personal property or services in 
such State or subdivision, or the solicitation of orders or contracts 
for such sales in such State or subdivision, on behalf of such person 
by one or more independent contractors, or by reason of the maintenance 
of an office in such State or subdivision by one or more independent 
contractors whose activities on behalf of such person in such State or 
subdivision consist solely of making such sales, or soliciting orders 
or contracts for such sales.
    ``(d) Attribution of Activities and Presence.--For purposes of this 
section, the substantial physical presence of any person shall not be 
attributed to any other person absent the establishment of an actual 
agency relationship between such persons that--
            ``(1) results from the consent by both persons that one 
        person act on behalf and subject to the control of the other; 
        and
            ``(2) relates to the activities of the person within the 
        State or subdivision thereof.
    ``(e) Definitions.--For purposes of this title:
            ``(1) Business activity tax.--The term `business activity 
        tax' means a tax imposed on, or measured by, net income, a 
        business license tax, a business and occupation tax, a 
        franchise tax, a single business tax or a capital stock tax, or 
        any similar tax or fee imposed by a State or subdivision 
        thereof on a business for the right to do business within the 
        State or subdivision or which is measured by the amount of such 
        business or related activity.
            ``(2) Independent contractor.--The term `independent 
        contractor' means a commission agent, broker, or other 
        independent contractor who is engaged in selling, or soliciting 
        orders or contracts for the sale of, tangible or intangible 
        personal property or services for more than one principal and 
        who holds himself or herself out as such in the regular course 
        of his or her business activities.
            ``(3) 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.
            ``(4) 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 a part of a package of 
        services offered to users.
            ``(5) Representative.--The term `representative' does not 
        include an independent contractor.
            ``(6) Solicitation of orders or contracts.--The term 
        `solicitation of orders or contracts' includes activities 
        normally ancillary to such solicitation.
            ``(7) State.--The term `State' means any of the several 
        States, the District of Columbia, or any territory or 
        possession of the United States.
            ``(8) World wide web.--The term `World Wide Web' means a 
        computer server-based file archive accessible, over the 
        Internet, using a hypertext transfer protocol, file transfer 
        protocol, or other similar protocols.
    ``(f) Application of Section.--This section shall not be construed 
to limit, in any way, constitutional restrictions otherwise existing on 
State or local taxing authority.

``SEC. 102. ASSESSMENT OF BUSINESS ACTIVITY TAXES.

    ``(a) Limitations.--No State or subdivision thereof shall have 
power to assess after the date of enactment of this title any business 
activity tax which was imposed by such State or subdivision for any 
taxable year ending on or before such date, on or measured by the 
business activity within such State that affect interstate commerce, if 
the imposition of such tax for a taxable year ending after such date is 
prohibited by section 101.
    ``(b) Collections.--The provisions of subsection (a) shall not be 
construed--
            ``(1) to invalidate the collection on or before the date of 
        enactment of this title of any business activity tax imposed 
        for a taxable year ending on or before such date; or
            ``(2) to prohibit the collection after such date of any 
        business activity tax which was assessed on or before such date 
        for a taxable year ending on or before such date.

``SEC. 103. TERMINATION OF SUBSTANTIAL PHYSICAL PRESENCE.

    ``If a State or subdivision thereof has imposed a business activity 
tax on a person as described in section 101, and the person so 
obligated no longer has a substantial physical presence in that State 
or subdivision, the obligation to pay a business activity tax applies 
only for the period in which the person has a substantial physical 
presence.

``SEC. 104. SEPARABILITY.

    ``If any provision of this title or the application of such 
provision to any person or circumstance is held invalid, the remainder 
of this title or the application of such provision to persons or 
circumstances other than those to which it is held invalid, shall not 
be affected thereby.''.