PUBLIC LAW 108–435—DEC. 3, 2004 118 STAT. 2615

Public Law 108–435

108th Congress

An Act

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.

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 Nondiscrimination

Act’’.

SEC. 2. FOUR-YEAR EXTENSION OF INTERNET TAX MORATORIUM.

(a) IN GENERAL.—Subsection (a) of section 1101 of the Internet

Tax Freedom Act (47 U.S.C. 151 note) is amended to read as

follows:

‘‘(a) MORATORIUM.—No State or political subdivision thereof

may impose any of the following taxes during the period beginning

November 1, 2003, and ending November 1, 2007:

‘‘(1) Taxes on Internet access.

‘‘(2) Multiple or discriminatory taxes on electronic commerce.’’.

(b) CONFORMING AMENDMENTS.—(1) Section 1101 of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended by striking

subsection (d) and redesignating subsections (e) and (f) as subsections (d) and (e), respectively.

(2) Section 1104(10) of the Internet Tax Freedom Act (47 U.S.C.

151 note) is amended to read as follows:

‘‘(10) TAX ON INTERNET ACCESS.—

‘‘(A) IN GENERAL.—The term ‘tax on Internet access’

means a tax on Internet access, regardless of whether

such tax is imposed on a provider of Internet access or

a buyer of Internet access and regardless of the terminology

used to describe the tax.

‘‘(B) GENERAL EXCEPTION.—The term ‘tax on Internet

access’ does not include a tax levied upon or measured

by net income, capital stock, net worth, or property value.’’.

(3) Section 1104(2)(B)(i) of the Internet Tax Freedom Act (47

U.S.C. 151 note) is amended by striking ‘‘except with respect to

a tax (on Internet access) that was generally imposed and actually

enforced prior to October 1, 1998,’’.

(c) INTERNET ACCESS SERVICE; INTERNET ACCESS.—

(1) INTERNET ACCESS SERVICE.—Paragraph (3)(D) of section

1101(d) (as redesignated by subsection (b)(1) of this section)

of the Internet Tax Freedom Act (47 U.S.C. 151 note) is

amended by striking the second sentence and inserting ‘‘The

47 USC 609 note.

Internet Tax

Nondiscrimination Act.

Dec. 3, 2004

[S. 150]

118 STAT. 2616 PUBLIC LAW 108–435—DEC. 3, 2004

term ‘Internet access service’ does not include telecommunications services, except to the extent such services are purchased, used, or sold by a provider of Internet access to provide

Internet access.’’.

(2) INTERNET ACCESS.—Section 1104(5) of that Act is

amended by striking the second sentence and inserting ‘‘The

term ‘Internet access’ does not include telecommunications services, except to the extent such services are purchased, used,

or sold by a provider of Internet access to provide Internet

access.’’.

SEC. 3. GRANDFATHERING OF STATES THAT TAX INTERNET ACCESS.

The Internet Tax Freedom Act (47 U.S.C. 151 note) is

amended—

(1) by redesignating section 1104 as section 1105; and

(2) by inserting after section 1103 the following:

‘‘SEC. 1104. GRANDFATHERING OF STATES THAT TAX INTERNET

ACCESS.

‘‘(a) PRE-OCTOBER 1998 TAXES.— ‘‘(1) 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—

‘‘(A) the tax was authorized by statute; and

‘‘(B) either—

‘‘(i) 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

‘‘(ii) a State or political subdivision thereof generally

collected such tax on charges for Internet access.

‘‘(2) TERMINATION.— ‘‘(A) IN GENERAL.—Except as provided in subparagraph

(B), this subsection shall not apply after November 1, 2007.

‘‘(B) STATE TELECOMMUNICATIONS SERVICE TAX.— ‘‘(i) DATE FOR TERMINATION.—This subsection shall

not apply after November 1, 2006, with respect to

a State telecommunications service tax described in

clause (ii).

‘‘(ii) DESCRIPTION OF TAX.—A State telecommunications service tax referred to in subclause (i) is a

State tax—

‘‘(I) enacted by State law on or after October

1, 1991, and imposing a tax on telecommunications

service; and

‘‘(II) applied to Internet access through

administrative code or regulation issued on or after

December 1, 2002.’’.

‘‘(b) PRE-NOVEMBER 2003 TAXES.—

‘‘(1) IN GENERAL.—Section 1101(a) does not apply to a tax

on Internet access that was generally imposed and actually

enforced as of November 1, 2003, if, as of that date, the tax

was authorized by statute and—

‘‘(A) a provider of Internet access services had a reasonable opportunity to know by virtue of a public rule or

other public proclamation made by the appropriate

47 USC 151 note.

47 USC 151 note.

PUBLIC LAW 108–435—DEC. 3, 2004 118 STAT. 2617

administrative agency of the State or political subdivision

thereof, that such agency has interpreted and applied such

tax to Internet access services; and

‘‘(B) a State or political subdivision thereof generally

collected such tax on charges for Internet access.

‘‘(2) TERMINATION.—This subsection shall not apply after

November 1, 2005.’’.

SEC. 4. ACCOUNTING RULE.

The Internet Tax Freedom Act (47 U.S.C. 151 note) is amended

by adding at the end the following:

‘‘SEC. 1106. ACCOUNTING RULE.

‘‘(a) IN GENERAL.—If charges for Internet access are aggregated

with and not separately stated from charges for telecommunications

services or other charges that are subject to taxation, then the

charges for Internet access may be subject to taxation unless the

Internet access provider can reasonably identify the charges for

Internet access from its books and records kept in the regular

course of business.

‘‘(b) DEFINITIONS.—In this section:

‘‘(1) CHARGES FOR INTERNET ACCESS.—The term ‘charges

for Internet access’ means all charges for Internet access as

defined in section 1105(5).

‘‘(2) CHARGES FOR TELECOMMUNICATIONS SERVICES.—The

term ‘charges for telecommunications services’ means all

charges for telecommunications services, except to the extent

such services are purchased, used, or sold by a provider of

Internet access to provide Internet access.’’.

SEC. 5. EFFECT ON OTHER LAWS.

The Internet Tax Freedom Act (47 U.S.C. 151 note), as amended

by section 4, is amended by adding at the end the following:

‘‘SEC. 1107. EFFECT ON OTHER LAWS.

‘‘(a) UNIVERSAL SERVICE.—Nothing in this Act shall prevent

the imposition or collection of any fees or charges used to preserve

and advance Federal universal service or similar State programs—

‘‘(1) authorized by section 254 of the Communications Act

of 1934 (47 U.S.C. 254); or

‘‘(2) in effect on February 8, 1996.

‘‘(b) 911 AND E–911 SERVICES.—Nothing in this Act shall prevent the imposition or collection, on a service used for access to

911 or E–911 services, of any fee or charge specifically designated

or presented as dedicated by a State or political subdivision thereof

for the support of 911 or E–911 services if no portion of the revenue

derived from such fee or charge is obligated or expended for any

purpose other than support of 911 or E–911 services.

‘‘(c) NON-TAX REGULATORY PROCEEDINGS.—Nothing in this Act

shall be construed to affect any Federal or State regulatory proceeding that is not related to taxation.’’.

SEC. 6. EXCEPTION FOR VOICE AND OTHER SERVICES OVER THE

INTERNET.

The Internet Tax Freedom Act (47 U.S.C. 151 note), as amended

by section 5, is amended by adding at the end the following:

118 STAT. 2618 PUBLIC LAW 108–435—DEC. 3, 2004

‘‘SEC. 1108. EXCEPTION FOR VOICE SERVICES OVER THE INTERNET.

‘‘Nothing in this Act shall be construed to affect the imposition

of tax on a charge for voice or similar service utilizing Internet

Protocol or any successor protocol. This section shall not apply

to any services that are incidental to Internet access, such as

voice-capable e-mail or instant messaging.’’.

SEC. 6A. EXCEPTION FOR TEXAS MUNICIPAL ACCESS LINE FEE.

The Internet Tax Freedom Act (47 U.S.C. 151 note), as amended

by section 6, is amended by adding at the end the following:

‘‘SEC. 1109. EXCEPTION FOR TEXAS MUNICIPAL ACCESS LINE FEE.

‘‘Nothing in this Act shall prohibit Texas or a political subdivision thereof from imposing or collecting the Texas municipal access

line fee pursuant to Texas Local Govt. Code Ann. ch. 283 (Vernon

2005) and the definition of access line as determined by the Public

Utility Commission of Texas in its ‘Order Adopting Amendments

to Section 26.465 As Approved At The February 13, 2003 Public

Hearing’, issued March 5, 2003, in Project No. 26412.’’.

SEC. 7. GAO STUDY OF EFFECTS OF INTERNET TAX MORATORIUM ON

STATE AND LOCAL GOVERNMENTS AND ON BROADBAND

DEPLOYMENT.

The Comptroller General shall conduct a study of the impact

of the Internet tax moratorium, including its effects on the revenues

of State and local governments and on the deployment and adoption

of broadband technologies for Internet access throughout the United

States, including the impact of the Internet Tax Freedom Act (47

U.S.C. 151 note) on build-out of broadband technology resources

in rural underserved areas of the country. The study shall compare

deployment and adoption rates in States that tax broadband Internet access service with States that do not tax such service, and

take into account other factors to determine whether the Internet

Tax Freedom Act has had an impact on the deployment or adoption

of broadband Internet access services. The Comptroller General

shall report the findings, conclusions, and any recommendations

from the study to the Senate Committee on Commerce, Science,

and Transportation and the House of Representatives Committee

on Energy and Commerce no later than November 1, 2005.

Reports.

Deadline.

PUBLIC LAW 108–435—DEC. 3, 2004 118 STAT. 2619

LEGISLATIVE HISTORY—S. 150 (H.R. 49):

HOUSE REPORTS: No. 108–234 accompanying H.R. 49 (Comm. on the Judiciary).

SENATE REPORTS: No. 108–155 (Comm. on Commerce, Science, and Transportation).

CONGRESSIONAL RECORD:

Vol. 149 (2003): Nov. 6, 7, considered in Senate.

Vol. 150 (2004): Apr. 27–29, considered and passed Senate.

Nov. 19, considered and passed House.

Æ

SEC. 8. EFFECTIVE DATE.

The amendments made by this Act take effect on November

1, 2003.

Approved December 3, 2004.

47 USC 151 note.