**BACKGROUND AND PRESENT LAW RELATING TO**
**FUNDING MECHANISMS OF THE**

**"E-RATE" TELECOMMUNICATIONS PROGRAM**

Scheduled for a Public Hearing

Before the

SUBCOMMITTEE ON OVERSIGHT

of the

HOUSE COMMITTEE ON WAY AND MEANS

on August 4, 1998

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

July 31, 1998

JCX-59-98

**CONTENTS**

INTRODUCTION	

BACKGROUND AND PRESENT LAW	

	A.	Overview of the Federal Communications Excise Tax	

	B.	Overview of the "Universal Service" Provisions of the Telecommunications Act of 1996	

	C.	Definitional Issues in the Distinction of Fees, Taxes and Revenue Measures	

**INTRODUCTION**

	The Oversight Subcommittee of the House Committee on Ways and Means has scheduleda public hearing on August 4, 1998, on the funding mechanisms adopted by the FederalCommunications Commission (the "FCC") for the "E-rate" program which provides discountson basic telecommunications service and advanced telecommunications services for schools andlibraries under the Telecommunications Act of 1996 (the "Telecommunications Act").  To fundthe E-rate program, the FCC has imposed mandatory charges ("contributions") on alltelecommunications service providers.  The Oversight Subcommittee will examine thesemandatory contributions to determine whether they are in substance administratively imposedtaxes.

	This document,(1) prepared by the staff of the Joint Committee on Taxation, providesbackground information and an overview of present law relating to the Federal communicationsexcise tax and the "universal service" provisions of the Telecommunications Act.  Also, thedocument discusses definitional issues in the distinction of fees, taxes and revenue measures.

**BACKGROUND AND PRESENT LAW**

**A.  Overview of the Federal Communications Excise Tax**

**Present law**

	A 3-percent excise tax is imposed on amounts paid for local and toll (long-distance)telephone service and teletypewriter exchange service.  In addition, amounts paid tocommunications service providers for the right to award or distribute telephone service viaprepaid telephone cards or other arrangements are treated as amounts paid for taxablecommunications services, subject to the 3-percent *ad valorem* tax rate.  Generally, the tax iscollected by the provider of the service from the consumer (business and personal service).  Theservice provider remits the tax to the Federal Government.  Revenues from the tax go to theGeneral Fund of the Treasury.

	Tax is imposed only for local or toll service that provides a "telephonic qualitycommunication" (Internal Revenue Code secs. 4252(a)(1) and (b)(1)).  This standard generallyhas been interpreted to represent "voice quality" communication.  Because electronic mail ("e-mail") communication does not provide the user with opportunity for voice-basedcommunication, payments by users for e-mail service are not taxable as local or tollcommunications service.  In a series of private letter rulings, the Internal Revenue Service hasdetermined that e-mail services are not properly characterized as a teletypewriter exchangesystem as defined under Code section 4252(c).(2)  Thus, e-mail service is subject to thecommunications excise tax only to the extent that the e-mail service uses taxable telephoneservice as a component of the e-mail service.  For example, if the e-mail provider uses telephonelines to connect various subscribers, the use of the telephone lines may be taxable under presentlaw, but charges for the e-mail service itself would not be taxable.

	Exemptions from the telephone excise tax are provided for installation charges, certaincoin-operated service, news services (except local service), international organizations, theAmerican Red Cross, members of the Armed Forces in combat zones, nonprofit hospitals andeducational organizations, State and local governments, and for certain toll telephone service(*e.g.*, WATS) paid by a common carrier, telephone or telegraph company or radio broadcastingcompany in the conduct of its business.  In addition, an exemption is provided from the definitionof local telephone service for private communications systems (e.g., certain dedicated linesleased to a single business user).

**Legislative history**

	An excise tax on telephone service has been in effect in every year since 1941.(3)  In theExcise Tax Reduction Act of 1965, the 10-percent tax on local and long distance telephoneservice and teletypewriter exchange service was scheduled to be reduced from 10 percent to 3percent after December 31, 1965, and by an additional 1 percentage point in each successive yearuntil there would have been no tax effective on January 1, 1969.  However, the scheduledreduction in tax rates was rescinded in the Tax Adjustment Act of 1966,(4) and a revised phaseoutwas scheduled to go into effect on January 1, 1970.  This also was deferred, and a 1-percent-peryear phaseout went into effect on January 1, 1973.

	In 1973, the rate of tax declined from 10 percent to 9 percent as the first step in aschedule according to which the rate of tax was to decline by 1 percentage point per year and thusto expire as of January 1, 1982.  However, the Omnibus Budget Reconciliation Act of 1980delayed the repeal by one year until January 1, 1983; and the Economic Recovery Tax Act of1981 further delayed repeal for two additional years, or until January 1, 1985.  The Tax Equityand Fiscal Responsibility Act of 1982 increased the rate of tax to 3 percent and extended thetermination date to January 1, 1986.  The Deficit Reduction Act of 1984 delayed repeal for anadditional two years, or until January 1, 1988.  The Omnibus Budget Reconciliation Act of 1987further delayed repeal until January 1, 1991.  The Omnibus Budget Reconciliation Act of 1990made the 3-percent tax rate permanent.  The Taxpayer Relief Act of 1997 clarified that amountspaid for prepaid telephone cards and other similar arrangements constituted payments forcommunications services subject to the 3-percent *ad valorem* tax.

	A 10-percent tax on telegraph service, a 10-percent tax on private communications(intercom) service, and an 8-percent tax on wire and equipment service (such as stock quotationand information services) were repealed in the Excise Tax Reduction Act of 1965. 

**Communications excise tax receipts, 1984-2008**

	Table 1 below reports receipts for the Federal communications excise tax from fiscal year1984 through fiscal year 1997, and provides the Congressional Budget Office's projection ofreceipts for fiscal year 1998 through 2008.

**Table 1.-Federal Communications Excise Tax Receiptsand Projected Receipts,Fiscal Years 1984-2008(5)**[millions of dollars]
**Year****Receipts****Year****Projections**19842,03519985,16419852,14719995,55119862,33920005,94619872,52220016,32619882,61020026,73019892,79120037,17519902,99520047,64219913,09420058,14819923,14620068,65419933,32020079,19219943,52620089,74219953,79419964,23419974,543
**B.  Overview of the "Universal Service" Provisions of the Telecommunications Act of 1996**

	The Telecommunications Act of 1996(6) provided a major rewrite of Federaltelecommunications law in light of substantial industry restructuring that was and remains underwayand the development of new technology not available when prior law was enacted.  Beginning in1985, the Federal Communications Commission (the "FCC") had implemented certain regulatoryprograms to promote "universal access" to telephone service.  Primarily, these pre-1996 programswere designed to cross-subsidize service to low-income consumers, rural areas, and high-cost areasin a manner similar to private measures undertaken by AT&T before divestiture of local telephoneservice.  Before 1996, only long distance companies paid charges to support universal service.

	Section 254 of the Telecommunications Act codified and expanded the concept of universalservice, to be implemented according to the following principles enunciated in the Act:

	(1)  Qualified services should be available at just, reasonable, and affordable rates;

	(2)  Access to advanced telecommunications and information services should be providedin all regions;

	(3)  Consumers in all regions, particularly those in rural, insular, and high-cost areas, shouldhave access to telecommunications and information services on a basis (including rates) availablein urban areas generally;

	(4)  All telecommunications providers should make "equitable and nondiscriminatory"contributions to the preservation and advancement of universal service;

	(5)  There should be specific and supportable Federal and State mechanisms to preserve andadvance universal service; and

	(6)  Elementary and secondary schools and classrooms, health care providers, and librariesshould have access to advanced telecommunications services.

	On May 7, 1997, the FCC adopted an order to implement the principles of section 254 of theTelecommunications Act.  This order subsequently was modified on June 12, 1998.  Under the order,charges are imposed on all telecommunications carriers that provide service between States,including long distance carriers, local service providers, cellular telephone companies, pagingcompanies, and payphone companies.

	The principal expansion of the universal service program was the provision of benefits forpublic and nonprofit elementary and secondary schools, public and certain other research libraries,and rural health care providers.(7)  The directive of the Telecommunications Act is thattelecommunications carriers shall provide services to schools and libraries at "rates less than theamounts charged for similar services to other parties."(8)  For rural health care providers, rates are tobe the same as rates charged in urban areas of the same States.(9)  The Telecommunications Act furtherstates that all of these parties are to have access to "advanced telecommunications services," and theFCC's order requires assistance on the provision of Internet access costs and internal connectionsin facilities (e.g., wiring, file servers, and routers) to implement this objective.

	The Telecommunications Act is structured to require the provision of these discount servicesand to provide for reimbursement to the telecommunications carriers of the costs of providing thediscount services.  The source of the funds for reimbursements is the "equitable andnondiscriminatory contributions" by telecommunications carriers provided for as a "principle" in theAct.  The FCC created a fund, capped at $2.25 billion per year, to support universal service discountsfor schools and libraries.  On June 12, 1998, this maximum funding amount was reduced to $1.925billion over an 18-month period (January 1, 1998 to June 30, 1999).  Required "contributions" wereallocated among covered telecommunications carriers  based on the carriers' receipts duringprescribed prior periods.

	In its initial order, the FCC provided that the expanded universal service program would beadministered by two non-profit corporations:  the Schools and Libraries Corporation and the RuralHealth Care Corporation.  In its June 12, 1998, revised order, the FCC proposed to merge thesecorporations into the Universal Service Administrative Company, which administers other portionsof the universal service program.(10)  In January 1998, the Congressional Budget Office issued adetermination that the "contributions" required to support the universal service program are Federalrevenues.(11)

	Telecommunications carriers have challenged the "contributions" required under the FCCorders, taking the position that the charges are in substance taxes, and that if they are authorized, theauthorization represents an unconstitutional delegation of the taxing power by Congress.(12)

**C.  Definitional Issues in the Distinction of Fees, Taxes, and Revenue Measures**

**In general**

	Article I, Section 8 of the United States Constitution includes among the enumerated powersof Congress the " . . . Power To lay and collect Taxes, Duties, Imposts, and Excises . . . ."  Congressis limited in its ability to delegate legislative authority to the Executive Branch. When impositionof taxes and other "revenue measures" are considered by the Congress, the House Committee onWays and Means and the Senate Committee on Finance have exclusive jurisdiction.  (*See,*RuleX(s)(3) of the Rules of the House of Representatives and Rule XXV. 1(i)(8) of the Standing Rulesof the Senate.)  The term revenue measure includes both taxes and those fees that are structured ina manner that is not precisely linked to the cost of Government services for which the charge ismade.  For example, charges that are not based solely on the cost of providing the service withrespect to which they are imposed, generally are viewed as fees constituting revenue measures thatare within the exclusive jurisdiction of the Congressional tax committees.(13)

	All legislation raising revenues (*e.g.,* imposing taxes) must originate in the House ofRepresentatives.(14)  The prerogatives of the House of Representatives limit Senate origination of revenue-raising measures to provisions that are incorporated into House-passed revenue bills. TheHouse of Representatives determines when its prerogatives are violated, and generally has viewedthis prerogative as being broader than its rules governing jurisdiction of the Committee on Ways andMeans.  A determination by the House of Representatives that a bill violates the Origination Clauseis not subject to judicial review because it relates to what measures the House will legislativelyconsider.  However, the Supreme Court has ruled that when the House of Representatives does notassert its prerogative, the question of whether the Origination Clause has been violated nonethelessmay be judicially reviewed, and in appropriate cases result in a law being held to beunconstitutional.(15)

	The*Munoz-Flores*case reviewed the question of whether legislation imposing "specialassessments" on persons convicted of certain Federal crimes was passed in violation of theOrigination Clause.  Authorization for the assessments had been enacted as part of legislationoriginating in the Senate; the House of Representatives had not objected to enactment of theassessments as part of a Senate-originated bill.  The Court upheld imposition of the assessments. The Court set forth relatively narrow circumstances in which it would invalidate Federal assessmentsor charges under the Origination Clause when the House of Representatives has permitted theirenactment.  "[R]evenue bills are those that levy taxes in the strict sense of the word, and are not billsfor other purposes which may incidentally create revenue."  *Id.*at 397, *citing**Twin City Bank v.Nebeker,*167 U.S. 198 (1897).  In *Munoz-Flores,*the Court noted that while the legislationauthorizing the special assessments provided that if revenues beyond those required for programsestablished by the bill were produced by the assessments, the excess would be deposited in theGeneral Fund of the Treasury, there was no evidence that Congress anticipated that such an excesswould ever be produced.

	Unlike the taxing power, the power to impose non-tax, or true user fees may be delegated toexecutive agencies.  True user fees are not viewed as revenue measures for purposes ofCongressional jurisdiction; therefore, the rules of both Houses of Congress permit non-taxcommittees to authorize such fees.  In general, a true user fee is a charge levied on a class thatdirectly avails itself of a governmental program, and is used solely to finance that program ratherthan to finance the costs of the Government generally.  The amount of the fee charged to any payorgenerally may not exceed the direct costs of providing the services with respect to which the fee ischarged.  There must be a reasonable connection between the payors of the fee and the agency orfunction receiving the fee.  Those paying a fee have the choice of not utilizing the governmentalservice or avoiding the regulated activity and thereby avoiding the charge.  In other words, the feecan be viewed as a payment for a special privilege or service, as opposed to a mandatory charge (ortax) imposed on the public at large for general or specified (e.g., Trust Fund) governmental purposes.

	There often are disagreements as to whether certain charges constitute "fees" or "taxes" and,in the case of fees, whether the fees constitute revenue measures. These disagreements generallyarise in one or more of three contexts: (1) determining whether there has been an unconstitutionaldelegation of the taxing power; (2) determining whether legislation constitutes a revenue measurethat must originate in the House of Representatives,(16) or (3) determining the committee assignment(including sequential committee referral) for a particular bill.  The distinction between taxes andrevenue measures generally, and non-tax fees also has proven to be an important factor in someCourt cases evaluating the validity of charges under different provisions of the Constitution, i.e., feesthat would be considered  revenue measures for purposes of Congressional jurisdiction andprerogatives may be Constitutionally permissible in cases where an outright tax would not bebecause the fee is at least imprecisely linked to the cost of Government services provided.

**Judicial interpretations related to the determination of whether a charge is a "fee" or a "tax"**

In general.--Numerous Federal Courts, including the United States Supreme Court, have beencalled upon to determine whether taxes and other charges were permissible under provisions of theConstitution such as the Export Clause, the Commerce Clause, the Due Process Clause, or theTakings Clause.  In certain cases, this determination depended on whether the charges constituteduser fees or were in substance taxes.  In cases in which user fees were permissible, but taxes werenot, the Courts have applied the standards described above in making this determination, althoughthe specific aspects of those standards which have been relied upon in evaluating Federally imposedcharges have varied across the cases.(17)  For example, many cases have looked primarily to whethera charge is imposed as payment for a voluntary act that goes to defray the cost of regulating that actas opposed to being imposed as an arbitrary charge for some public purpose.(18)  Other charges havebeen evaluated primarily based on the benefits conferred in exchange for the charge, with the courtsholding that a charge is a tax if it confers no special benefit on the payee as opposed to defraying costs of services provided to the payors.(19)  Other courts have measured benefits in terms of the valueand cost of services provided to payors, holding that a charge is a tax if not fairly tied to both valueand cost of services.(20)  The three Supreme Court cases summarized below illustrate the ways inwhich the Court has distinguished fees (including fees that constitute revenue measures) from taxes.

Harbor maintenance excise tax.--On March 31, 1998, the United States Supreme Courtaddressed the circumstances which determine whether a Federally imposed charge is a tax or a userfee.  *United States v. United States Shoe Corp.,*___ U.S. ___, 118 S. Ct. 1290 (1998).(21)  The *U.S.Shoe* case concerned the constitutionality of the harbor maintenance excise tax under the ExportClause of the U.S. Constitution.(22)  The Export Clause states, "No Tax or Duty shall be laid onArticles exported from any State." **In ruling that the harbor maintenance excise tax wasunconstitutional as applied to exports, the Court noted that although the Export Clause categoricallybars Congress from imposing any tax on exports, it does not rule out imposition of  "user fees" thatlack the attributes of a generally applicable tax or duty and that are charges designed ascompensation for the costs for government-supplied services, facilities, or benefits.   

	In *U.S. Shoe,*the Government argued that the harbor maintenance excise tax was in substancea permissible user fee.  The harbor maintenance tax is imposed at a rate of 0.125 percent of the valueof cargo loaded or unloaded at United States ports. Revenues from the tax are deposited into theHarbor Maintenance Trust Fund, which is established to provide a financing source for certain ArmyCorps of Engineers harbor improvement projects.  The Court held that the connection between theharbor maintenance tax and the cost of any services provided to port users was too indirect to supportclassification of the charge as a user fee.(23)  Thus, the charge was a tax imposed in violation of theprohibition of the Export Clause.

Federal Communications Commission "fee" on cable television subscribers.--In *NationalCable Television Ass'n. v. United States,*415 U.S. 336 (1974), the Supreme Court held that a 30-cents-per-subscriber "fee" imposed on cable television subscribers pursuant to 1952 appropriationslegislation authorizing Federal agencies to impose fees on persons regulated by them to recover costsand value bestowed on the regulated parties to be an unconstitutional tax.  Justice Douglas, writingfor the majority, stated:

	Taxation is a legislative function, and Congress, which is the sole organ for levyingtaxes, may act arbitrarily and disregard benefits bestowed by the Government on ataxpayer and go solely on ability to pay, based on property or income.  A fee,however, is incident to a voluntary act, e.g., a request that a public agency permit anapplicant to practice law or medicine or construct a house or run a broadcast station. The public agency performing those services normally may exact a fee for a grantwhich, presumably, bestows a benefit on the applicant, not shared by other membersof society. . . . A "fee" connotes a "benefit" and the Act by its use of the standard"value to the recipient" carries that connotation.  The addition of "public policy andinterest served, and other pertinent facts," if read literally, carries an agency far fromits customary orbit and puts it in search of revenue in the manner of anAppropriations Committee of the House.  

*Id.*at 340.

Prior-law civil aircraft excise tax.--In *Massachusetts v. United States,*435 U.S. 444 (1970),the Supreme Court addressed the question of whether a fixed-dollar annual aircraft excise taxviolated the doctrine of State immunity from Federal tax when applied to State-owned aircraft. Revenues from the tax were dedicated to the Airport and Airway Trust Fund. The Court firstaffirmed lower court rulings that user fees do not implicate the tax immunity doctrine, and then heldthat State immunity from taxation does not extend to comparable measures such as "anondiscriminatory revenue measure . . . which operates to ensure that each member of a class ofspecial beneficiaries of a federal program pay a reasonable approximation of its fair share of the costof the program to the National Government." *Id.*at 453.  More generally, the Court stated that thedoctrine of State immunity from Federal taxation was not offended by charges that "do notdiscriminate against state functions, are based on a fair approximation of use of the system, and arestructured to produce revenues that will not exceed the total cost to the Federal Government of thebenefits to be supplied . . . . " *Id.* at 466-467.  In other words, user fees in broad sense, even whendenominated as taxes, do not violate the doctrine of State immunity from Federal taxation.

1.   This document may be cited as follows: Joint Committee on Taxation, *Background andPresent Law Relating to Funding Mechanisms of the "E-Rate" Telecommunications Program*(JCX-59-98), July 31, 1998.
2. *See, e.g.,* Priv. Ltr. Rul. 92-15-059 (Dec. 23, 1991).
3.   A tax on toll telephone service originated in 1898, with a tax of one cent for each callvalued at fifteen cents or more.  This tax was repealed in 1902.  A tax on toll service wasreenacted in 1914, with the tax on a per-message basis.  This tax was repealed and reimposedseveral times until being changed to a 10-percent tax in 1941.  The toll telephone tax rate was 20percent for 1942-1943 and 25 percent from 1944-1954.  The tax on other telephone serviceoriginated in 1941 at 10 percent, and was 15 percent from 1944-1954.
4.   Pub. L. No. 89-368, approved March 15, 1966.

5.   Data for 1984 through 1997 represent actual receipts as reported in *Budget of theUnited States Government, Fiscal Year 1999: Historical Tables*, Table 2.4.  Data for 1998through 2008 are Congressional Budget Office July 1998 baseline projections.
6.   Pub. L. No. 104-104, approved Feb. 8, 1996 (hereinafter, the "TelecommunicationsAct").  The Telecommunications Act was enacted in S. 652, rather than as a House ofRepresentatives-originated revenue bill.
7.   For more information, *see,* James B. Stedman, Congressional Research Service, *E-Ratefor Schools: Background on Telecommunications Discounts Through the Universal ServiceFund,* 98-604EPW (July 13, 1998).
8.   The discounts for schools are based on the percentage of a school's population eligiblefor free or reduced priced lunches under the National School Lunch program.  When thatpercentage is less than 1 percent, urban schools receive a discount of 20 percent while ruralschools receive a 25-percent discount.  These discounts rise in stages as the percentage of low-income students increases.  When the percentage of low-income students is between 75 percentand 100 percent, all schools receive 90-percent discounts.  This discount structure also is used forlibraries based on the percentages of students eligible for free or reduced price meals in theschool district in which the library is located.
9.   Telecommunications Act, sec. 254(h).  
10.   In a February 10, 1998, letter, the General Accounting Office (the "GAO") concludedthat the FCC had exceeded its authority when it directed that the Schools and LibrariesCorporation and the Rural Health Care Corporation be created.  *See,*U.S. General AccountingOffice, Letter to Senator Ted Stevens, February 10, 1998 (B-278820). 
11. *See,* Congressional Budget Office, *Federal Subsidies of AdvancedTelecommunications for Schools, Libraries, and Health Care Providers,* January 1998.
12. *See, Texas Office of Pub. Utility Counsel v. FCC,* Civ. No. 97-60421, currentlypending in the United States Court of Appeals for the 5th Circuit.
13. *See*, 137 *Cong. Rec.* H501 (Jan. 15, 1991) (statement of the Speaker of the Houseproviding guidance for the application of House Rule X, regarding the referral of bills, and clause5(b) of House Rule XXI, regarding tax and tariff measures), stating the following:

Standing committees of the House (other than the Committees onAppropriations and Budget) have jurisdiction to consider user, regulatory andother fees, charges, and assessments levied on a class directly availing itself of, ordirectly subject to, a governmental service, program, or activity, but not on thegeneral public, as measures to be utilized solely to support, subject to annualappropriations, the service, program, or activity (including agency functionsassociated therewith) for which such fees, charges, and assessments areestablished and collected and not to finance the costs of Government generally. The fee must be paid by a class benefiting from the service, program or activity, orbeing regulated by the agency; in short, there must be a reasonable connectionbetween the payors and the agency or function receiving the fee.  The fund thatreceives the amounts collected is not itself determinative of the existence of a feeor a tax.  The Committee on Ways and Means has jurisdiction over "revenuemeasures generally" under rule X.  That committee is entitled to an appropriatereferral of broad-based fees and could choose to recast such fees as excise taxes. A provision only reauthorizing or amending an existing fee without fundamentalchange, or creating a new fee generating only a *de minimis* aggregate amount ofrevenues, does not necessarily require a sequential referral to the Committee onWays and Means.  The Chair intends to coordinate these principles with theCommittee on the Budget and the Congressional Budget Office, especially in thereconciliation process, so that budget scorekeeping does not determine, andreconciliation directives and their implementation will not be inconsistent with,committee jurisdiction.
		Further, it should be emphasized that the constitutional prerogative of theHouse to originate revenue measures will continue to be viewed broadly toinclude any meaningful revenue proposal that the Senate may attempt to originate. 

	This interpretation of the position of the House of Representatives had been adopted insucceeding Congresses, including the 105th Congress.  *See,*143 *Cong. Rec.*H32 (Jan. 7, 1997).
14.   Article I, Section 7 of the U.S. Constitution (commonly referred to as the "OriginationClause") provides that "[a]ll Bills for raising Revenue [must] originate in the House ofRepresentatives . . . . "  This prerogative of the House is enforced by a privileged motionavailable to any Member, commonly referred to as a "blue slip" motion.
15. *See, United States v. Munoz-Flores,*495 U.S. 385 (1990) (hereinafter "*Munoz-Flores")*, 
16. *See, e.g.,* the Statement of Managers on the Federal Aviation Reauthorization Act of1996, clarifying that certain fees which the Federal Aviation Administration (the "FAA") isauthorized to charge for overflight services provided to aircraft that neither take-off nor landwithin the United States may "not exceed the aggregate annual direct costs incurred by the FAAin providing air traffic services to such flights."  (H.R. Rep. No. 848, 104th Cong. 2nd Sess., 110(1996))  Also, the report of the House Committee on Transportation and Infrastructure on thatsame legislation, to the effect that these user fees may not be based on "any non-cost baseddetermination of the 'value' of the service provided.  For example, assuming similar costs ofserving different carrier and aircraft types, the FAA user fees should not vary based on factorssuch as aircraft seating capacity or revenues derived from passenger fares."  (H.R. Rept. No. 714,104th Cong., 2nd Sess., pt. 1, 50 (1996))
17.   For a more detailed discussion of these cases, *see, Thomas v. Network Solutions, Inc.,*Civ. No. 97-2412(TFH) (D.D.C., Apr. 3, 1998) (*"Network Solutions"*).  *Network Solutions*addressed the question of whether registration "fees" charged under a cooperative agreementbetween the National Science Foundation ("NSF") and Network Solutions, Inc. ("NSI") were insubstance an unconstitutional tax because they were not imposed by Congress.   The facts of*Network Solutions* were that the NSF contracted with NSI to operate a domain name registrationsystem for the Internet and NSI established a fee schedule, both for initial registrations and forannual renewal registrations.  Under the cooperative agreement between NSF and NSI, 30percent of the receipts from the "fees" were denominated as a "Preservation Assessment" anddeposited into an Intellectual Infrastructure Fund.  Amounts in the Intellectual InfrastructureFund were treated as Government receipts, available for appropriation, and had beenappropriated, for *inter alia,* Internet access programs.  The plaintiffs contended that the "fees, "exclusive of the Preservation Assessment exceeded costs of maintaining the registration system,and therefore, the Preservation Assessment constituted a tax.  Because the alleged taxes were notimposed by Congress, but rather were imposed pursuant to the action of a Federal agency, theywere unconstitutional.  

	In holding the Preservation Assessment to be an unconstitutional tax, the District Courtcited Supreme Court and other precedent on the distinction between user fees and taxes to theeffect that in general, a tax is a payment which is arbitrarily imposed for some public purposewhile a fee is a payment for a voluntary act, such as obtaining a permit, that defrays the expensesof regulating that act.  
18. *See, e.g., National Cable Television Ass'n.. v. United States,*415 U.S. 336 (1974)
19. *See, e.g., Cumberland Farms, Inc. v. Tax Assessor,* 116 F. 3d 943 (1st Cir. 1997);*United States v. River Coal Co.,*748 F. 2d 1103 (6th Cir. 1984); and *Butler v. State of MaineSupreme Judicial Court,*767 F. Supp. 17 (D. Me. 1991).  
20. *See, e.g., Massachusetts v. United States,*435 U.S. 444 (1978).
21.   Hereinafter cited as *U.S. Shoe.*
22.   Article I, Section 9, clause 5 of the U.S. Constitution.
23.   The Export Clause's prohibition of taxes is absolute.  In the case of other provisions ofthe Constitution, taxes and fees are restricted, but are permitted, and the Supreme Court hasadopted a less rigid standard for evaluating their legality.  *See., e.g., United States v. SperryCorp.,*493 U.S. 52 (1989) upholding an *ad valorem* charge applied to awards certified by theIran-United States Claims Tribunal as not violating the Takings Clause of the Constitution, and *,Massachusetts v. United States,*435 U.S. 444 (1978), and *Evansville-Vanderburgh AirportAuthority Dist. v. Delta Airlines,*405 U.S. 707 (1972), upholding flat charges on civil aircraft orenplaning passengers as not violating the doctrine of State immunity from Federal taxation andthe Commerce Clause, respectively.