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[House Report 106-719]
[From the U.S. Government Publishing Office]

106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-719

======================================================================

 
                 MOBILE TELECOMMUNICATIONS SOURCING ACT

                                _______
                                

 July 10, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Gekas, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                        [To accompany H.R. 4391]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 4391) amending title 4 of the United States Code to 
establish nexus requirements for State and local taxation of 
mobile telecommunication services, having considered the same, 
reports favorably thereon with amendments and recommends that 
the bill as amended do pass.

                           TABLE OF CONTENTS

                                                                  

                                                                 Page
The Amendments.............................................           2
Purpose and Summary........................................           6
Background and Need for the Legislation....................           7
Hearings...................................................           9
Committee Consideration....................................           9
Vote of the Committee......................................           9
Committee Oversight Findings...............................           9
Committee on Government Reform Findings....................           9
New Budget Authority and Tax Expenditures..................          10
Congressional Budget Office Cost Estimate..................          10
Constitutional Authority Statement.........................          12
Section-by-Section Analysis and Discussion.................          12
Changes in Existing Law Made by the Bill, as Reported......          15

    The amendments are as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Mobile Telecommunications Sourcing 
Act''.

SEC. 2. AMENDMENTS TO TITLE 4 OF THE UNITED STATES CODE.

    (a) Amendment Relating to the States.--Chapter 4 of title 4 of the 
United States Code is amended by adding at the end the following:

``Sec. 116. Rules for determining State and local government treatment 
                    of charges related to mobile telecommunications 
                    services

    ``(a) Application of This Section Through Section 126.--This 
section through 126 of this title apply to any tax, charge, or fee 
levied by a taxing jurisdiction as a fixed charge for each customer or 
measured by gross amounts charged to customers for mobile 
telecommunications services, regardless of whether such tax, charge, or 
fee is imposed on the vendor or customer of the service and regardless 
of the terminology used to describe the tax, charge, or fee.
    ``(b) General Exceptions.--This section through 126 of this title 
do not apply to--
            ``(1) any tax, charge, or fee levied upon or measured by 
        the net income, capital stock, net worth, or property value of 
        the provider of mobile telecommunications service;
            ``(2) any tax, charge, or fee that is applied to an 
        equitably apportioned amount that is not determined on a 
        transactional basis;
            ``(3) any tax, charge, or fee that represents compensation 
        for a mobile telecommunications service provider's use of 
        public rights of way or other public property, provided that 
        such tax, charge, or fee is not levied by the taxing 
        jurisdiction as a fixed charge for each customer or measured by 
        gross amounts charged to customers for mobile telecommunication 
        services;
            ``(4) any generally applicable business and occupation tax 
        that is imposed by a State, is applied to gross receipts or 
        gross proceeds, is the legal liability of the home service 
        provider, and that statutorily allows the home service provider 
        to elect to use the sourcing method required in this section 
        through 126 of this title;
            ``(5) any fee related to obligations under section 254 of 
        the Communications Act of 1934; or
            ``(6) any tax, charge, or fee imposed by the Federal 
        Communications Commission.
    ``(c) Specific Exceptions.--This section through 126 of this title 
--
            ``(1) do not apply to the determination of the taxing situs 
        of prepaid telephone calling services;
            ``(2) do not affect the taxability of either the initial 
        sale of mobile telecommunications services or subsequent resale 
        of such services, whether as sales of such services alone or as 
        a part of a bundled product, if the Internet Tax Freedom Act 
        would preclude a taxing jurisdiction from subjecting the 
        charges of the sale of such services to a tax, charge, or fee, 
        but this section provides no evidence of the intent of Congress 
        with respect to the applicability of the Internet Tax Freedom 
        Act to such charges; and
            ``(3) do not apply to the determination of the taxing situs 
        of air-ground radiotelephone service as defined in section 
        22.99 of title 47 of the Code of Federal Regulations as in 
        effect on June 1, 1999.

``Sec. 117. Sourcing rules

    ``(a) Treatment of Charges for Mobile Telecommunications 
Services.--Notwithstanding the law of any State or political 
subdivision of any State, mobile telecommunications services provided 
in a taxing jurisdiction to a customer, the charges for which are 
billed by or for the customer's home service provider, shall be deemed 
to be provided by the customer's home service provider.
    ``(b) Jurisdiction.--All charges for mobile telecommunications 
services that are deemed to be provided by the customer's home service 
provider under sections 116 through 126 of this title are authorized to 
be subjected to tax, charge, or fee by the taxing jurisdictions whose 
territorial limits encompass the customer's place of primary use, 
regardless of where the mobile telecommunication services originate, 
terminate, or pass through, and no other taxing jurisdiction may impose 
taxes, charges, or fees on charges for such mobile telecommunications 
services.

``Sec. 118. Limitations

    ``Sections 116 through 126 of this title do not--
            ``(1) provide authority to a taxing jurisdiction to impose 
        a tax, charge, or fee that the laws of such jurisdiction do not 
        authorize such jurisdiction to impose; or
            ``(2) modify, impair, supersede, or authorize the 
        modification, impairment, or supersession of the law of any 
        taxing jurisdiction pertaining to taxation except as expressly 
        provided in sections 116 through 126 of this title.

``Sec. 119. Electronic databases for nationwide standard numeric 
                    jurisdictional codes

    ``(a) Electronic Database.--
            ``(1)  Provision of database.--A State may provide an 
        electronic database to a home service provider or, if a State 
        does not provide such an electronic database to home service 
        providers, then the designated database provider may provide an 
        electronic database to a home service provider.
            ``(2) Format.--(A) Such electronic database, whether 
        provided by the State or the designated database provider, 
        shall be provided in a format approved by the American National 
        Standards Institute's Accredited Standards Committee X12, that, 
        allowing for de minimis deviations, designates for each street 
        address in the State, including to the extent practicable, any 
        multiple postal street addresses applicable to one street 
        location, the appropriate taxing jurisdictions, and the 
        appropriate code for each taxing jurisdiction, for each level 
        of taxing jurisdiction, identified by one nationwide standard 
        numeric code.
            ``(B) Such electronic database shall also provide the 
        appropriate code for each street address with respect to 
        political subdivisions which are not taxing jurisdictions when 
        reasonably needed to determine the proper taxing jurisdiction.
            ``(C) The nationwide standard numeric codes shall contain 
        the same number of numeric digits with each digit or 
        combination of digits referring to the same level of taxing 
        jurisdiction throughout the United States using a format 
        similar to FIPS 55-3 or other appropriate standard approved by 
        the Federation of Tax Administrators and the Multistate Tax 
        Commission, or their successors. Each address shall be provided 
        in standard postal format.
    ``(b) Notice; Updates.--A State or designated database provider 
that provides or maintains an electronic database described in 
subsection (a) shall provide notice of the availability of the then 
current electronic database, and any subsequent revisions thereof, by 
publication in the manner normally employed for the publication of 
informational tax, charge, or fee notices to taxpayers in such State.
    ``(c) User Held Harmless.--A home service provider using the data 
contained in an electronic database described in subsection (a) shall 
be held harmless from any tax, charge, or fee liability that otherwise 
would be due solely as a result of any error or omission in such 
database provided by a State or designated database provider. The home 
service provider shall reflect changes made to such database during a 
calendar quarter not later than 30 days after the end of such calendar 
quarter for each State that issues notice of the availability of an 
electronic database reflecting such changes under subsection (b).

``Sec. 120. Procedure if no electronic database provided

    ``(a) Safe Harbor.--If neither a State nor designated database 
provider provides an electronic database under section 119, a home 
service provider shall be held harmless from any tax, charge, or fee 
liability in such State that otherwise would be due solely as a result 
of an assignment of a street address to an incorrect taxing 
jurisdiction if, subject to section 121, the home service provider 
employs an enhanced zip code to assign each street address to a 
specific taxing jurisdiction for each level of taxing jurisdiction and 
exercises due diligence at each level of taxing jurisdiction to ensure 
that each such street address is assigned to the correct taxing 
jurisdiction. If an enhanced zip code overlaps boundaries of taxing 
jurisdictions of the same level, the home service provider must 
designate one specific jurisdiction within such enhanced zip code for 
use in taxing the activity for such enhanced zip code for each level of 
taxing jurisdiction. Any enhanced zip code assignment changed in 
accordance with section 121 is deemed to be in compliance with this 
section. For purposes of this section, there is a rebuttable 
presumption that a home service provider has exercised due diligence if 
such home service provider demonstrates that it has--
            ``(1) expended reasonable resources to implement and 
        maintain an appropriately detailed electronic database of 
        street address assignments to taxing jurisdictions;
            ``(2) implemented and maintained reasonable internal 
        controls to promptly correct misassignments of street addresses 
        to taxing jurisdictions; and
            ``(3) used all reasonably obtainable and usable data 
        pertaining to municipal annexations, incorporations, 
        reorganizations and any other changes in jurisdictional 
        boundaries that materially affect the accuracy of such 
        database.
    ``(b) Termination of Safe Harbor.--Subsection (a) applies to a home 
service provider that is in compliance with the requirements of 
subsection (a), with respect to a State for which an electronic 
database is not provided under section 119 until the later of--
            ``(1) 18 months after the nationwide standard numeric code 
        described in section 119(a) has been approved by the Federation 
        of Tax Administrators and the Multistate Tax Commission; or
            ``(2) 6 months after such State or a designated database 
        provider in such State provides such database as prescribed in 
        section 119(a).

``Sec. 121. Correction of erroneous data for place of primary use

    ``(a) In General.--A taxing jurisdiction, or a State on behalf of 
any taxing jurisdiction or taxing jurisdictions within such State, 
may--
            ``(1) determine that the address used for purposes of 
        determining the taxing jurisdictions to which taxes, charges, 
        or fees for mobile telecommunications services are remitted 
        does not meet the definition of place of primary use in section 
        124(8) and give binding notice to the home service provider to 
        change the place of primary use on a prospective basis from the 
        date of notice of determination if--
                    ``(A) if the taxing jurisdiction making such 
                determination is not a State, such taxing jurisdiction 
                obtains the consent of all affected taxing 
                jurisdictions within the State before giving such 
                notice of determination; and
                    ``(B) before the taxing jurisdiction gives such 
                notice of determination, the customer is given an 
                opportunity to demonstrate in accordance with 
                applicable State or local tax, charge, or fee 
                administrative procedures that the address is the 
                customer's place of primary use;
            ``(2) determine that the assignment of a taxing 
        jurisdiction by a home service provider under section 120 does 
        not reflect the correct taxing jurisdiction and give binding 
        notice to the home service provider to change the assignment on 
        a prospective basis from the date of notice of determination 
        if--
                    ``(A) if the taxing jurisdiction making such 
                determination is not a State, such taxing jurisdiction 
                obtains the consent of all affected taxing 
                jurisdictions within the State before giving such 
                notice of determination; and
                    ``(B) the home service provider is given an 
                opportunity to demonstrate in accordance with 
                applicable State or local tax, charge, or fee 
                administrative procedures that the assignment reflects 
                the correct taxing jurisdiction.

``Sec.  122. Determination of place of primary use

    ``(a) Place of Primary Use.--A home service provider shall be 
responsible for obtaining and maintaining the customer's place of 
primary use (as defined in section 124). Subject to section 121, and if 
the home service provider's reliance on information provided by its 
customer is in good faith, a taxing jurisdiction shall--
            ``(1) allow a home service provider to rely on the 
        applicable residential or business street address supplied by 
        the home service provider's customer; and
            ``(2) not hold a home service provider liable for any 
        additional taxes, charges, or fees based on a different 
        determination of the place of primary use for taxes, charges or 
        fees that are customarily passed on to the customer as a 
        separate itemized charge.
    ``(b) Address Under Existing Agreements.--Except as provided in 
section 121, a taxing jurisdiction shall allow a home service provider 
to treat the address used by the home service provider for tax purposes 
for any customer under a service contract or agreement in effect 2 
years after the date of enactment of the Mobile Telecommunications 
Sourcing Act as that customer's place of primary use for the remaining 
term of such service contract or agreement, excluding any extension or 
renewal of such service contract or agreement, for purposes of 
determining the taxing jurisdictions to which taxes, charges, or fees 
on charges for mobile telecommunications services are remitted.

``Sec. 123. Scope; special rules

    ``(a) Act Does Not Supersede Customer's Liability to Taxing 
Jurisdiction.--Nothing in sections 116 through 126 modifies, impairs, 
supersedes, or authorizes the modification, impairment, or supersession 
of, any law allowing a taxing jurisdiction to collect a tax, charge, or 
fee from a customer that has failed to provide its place of primary 
use.
    ``(b) Additional Taxable Charges.--If a taxing jurisdiction does 
not otherwise subject charges for mobile telecommunications services to 
taxation and if these charges are aggregated with and not separately 
stated from charges that are subject to taxation, then the charges for 
nontaxable mobile telecommunications services may be subject to 
taxation unless the home service provider can reasonably identify 
charges not subject to such tax, charge, or fee from its books and 
records that are kept in the regular course of business.
    ``(c) Nontaxable Charges.--If a taxing jurisdiction does not 
subject charges for mobile telecommunications services to taxation, a 
customer may not rely upon the nontaxability of charges for mobile 
telecommunications services unless the customer's home service provider 
separately states the charges for nontaxable mobile telecommunications 
services from taxable charges or the home service provider elects, 
after receiving a written request from the customer in the form 
required by the provider, to provide verifiable data based upon the 
home service provider's books and records that are kept in the regular 
course of business that reasonably identifies the nontaxable charges.

``Sec. 124. Definitions

    ``In sections 116 through 126 of this title:
            ``(1) Charges for mobile telecommunications services.--The 
        term `charges for mobile telecommunications services' means any 
        charge for, or associated with, the provision of commercial 
        mobile radio service, as defined in section 20.3 of title 47 of 
        the Code of Federal Regulations as in effect on June 1, 1999, 
        or any charge for, or associated with, a service provided as an 
        adjunct to a commercial mobile radio service, that is billed to 
        the customer by or for the customer's home service provider 
        regardless of whether individual transmissions originate or 
        terminate within the licensed service area of the home service 
        provider.
            ``(2) Customer.--
                    ``(A) In general.--The term `customer' means--
                            ``(i) the person or entity that contracts 
                        with the home service provider for mobile 
                        telecommunications services; or
                            ``(ii) if the end user of mobile 
                        telecommunications services is not the 
                        contracting party, the end user of the mobile 
                        telecommunications service, but this clause 
                        applies only for the purpose of determining the 
                        place of primary use.
                    ``(B) The term `customer' does not include--
                            ``(i) a reseller of mobile 
                        telecommunications service; or
                            ``(ii) a serving carrier under an 
                        arrangement to serve the customer outside the 
                        home service provider's licensed service area.
            ``(3) Designated database provider.--The term `designated 
        database provider' means a corporation, association, or other 
        entity representing all the political subdivisions of a State 
        that is--
                    ``(A) responsible for providing an electronic 
                database prescribed in section 119(a) if the State has 
                not provided such electronic database; and
                    ``(B) approved by municipal and county associations 
                or leagues of the State whose responsibility it would 
                otherwise be to provide such database prescribed by 
                sections 116 through 126 of this title.
            ``(4) Enhanced zip code.--The term `enhanced zip code' 
        means a United States postal zip code of 9 or more digits.
            ``(5) Home service provider.--The term `home service 
        provider' means the facilities-based carrier or reseller with 
        which the customer contracts for the provision of mobile 
        telecommunications services.
            ``(6) Licensed service area.--The term `licensed service 
        area' means the geographic area in which the home service 
        provider is authorized by law or contract to provide commercial 
        mobile radio service to the customer.
            ``(7) Mobile telecommunications service.--The term `mobile 
        telecommunications service' means commercial mobile radio 
        service, as defined in section 20.3 of title 47 of the Code of 
        Federal Regulations as in effect on June 1, 1999.
            ``(8) Place of primary use.--The term `place of primary 
        use' means the street address representative of where the 
        customer's use of the mobile telecommunications service 
        primarily occurs, which must be--
                    ``(A) the residential street address or the primary 
                business street address of the customer; and
                    ``(B) within the licensed service area of the home 
                service provider.
            ``(9) Prepaid telephone calling services.--The term 
        `prepaid telephone calling service' means the right to purchase 
        exclusively telecommunications services that must be paid for 
        in advance, that enables the origination of calls using an 
        access number, authorization code, or both, whether manually or 
        electronically dialed, if the remaining amount of units of 
        service that have been prepaid is known by the provider of the 
        prepaid service on a continuous basis.
            ``(10) Reseller.--The term `reseller'--
                    ``(A) means a provider who purchases 
                telecommunications services from another 
                telecommunications service provider and then resells, 
                uses as a component part of, or integrates the 
                purchased services into a mobile telecommunications 
                service; and
                    ``(B) does not include a serving carrier with which 
                a home service provider arranges for the services to 
                its customers outside the home service provider's 
                licensed service area.
            ``(11) Serving carrier.--The term `serving carrier' means a 
        facilities-based carrier providing mobile telecommunications 
        service to a customer outside a home service provider's or 
        reseller's licensed service area.
            ``(12) Taxing jurisdiction.--The term `taxing jurisdiction' 
        means any of the several States, the District of Columbia, or 
        any territory or possession of the United States, any 
        municipality, city, county, township, parish, transportation 
        district, or assessment jurisdiction, or any other political 
        subdivision within the territorial limits of the United States 
        with the authority to impose a tax, charge, or fee.

``Sec. 125. Nonseverability

    ``If a court of competent jurisdiction enters a final judgment on 
the merits that--
            ``(1) is based on Federal law;
            ``(2) is no longer subject to appeal; and
            ``(3) substantially limits or impairs the essential 
        elements of sections 116 through 126 of this title;
then sections 116 through 126 of this title are invalid and have no 
legal effect as of the date of entry of such judgment.

``Sec. 126. No inference

    ``(a) Internet Tax Freedom Act.--Nothing in sections 116 through 
this section of this title shall be construed as bearing on 
Congressional intent in enacting the Internet Tax Freedom Act or to 
modify or supersede the operation of such Act.
    ``(b) Telecommunications Act of 1996.--Nothing in sections 116 
through this section of this title shall limit or otherwise affect the 
implementation of the Telecommunications Act of 1996 or the amendments 
made by such Act.''.
    (b) Technical Amendment.--The table of sections of chapter 4 of 
title 4, United States Code, is amended by adding the following after 
the item relating to section 115:

``116. Rules for determining State and local government treatment of 
charges related to mobile telecommunications services.
``117. Sourcing rules.
``118. Limitations.
``119. Electronic databases for nationwide standard numeric 
jurisdictional codes.
``120. Procedure if no electronic database provided.
``121. Correction of erroneous data for place of primary use.
``122. Determination of place of primary use.
``123. Scope; special rules.
``124. Definitions.
``125. Nonseverability.
``126. No inference.''.

SEC. 3. EFFECTIVE DATE; APPLICATION OF AMENDMENT.

    (a) Effective Date..--Except as provided in subsection (b), this 
Act and the amendment made by this Act shall take effect on the date of 
the enactment of this Act.
    (b) Application of Act.--The amendment made by this Act shall apply 
only to customer bills issued after the 1st day of the 1st month 
beginning more than 2 years after the date of enactment of this Act.

    Amend the title so as to read:

      A bill to amend title 4 of the United States Code to 
establish sourcing requirements for State and local taxation of 
mobile telecommunication services.

                          Purpose and Summary

    H.R. 4391, the Mobile Telecommunications Sourcing Act, 
provides a uniform method for fairly and simply determining how 
State and local jurisdictions may tax wireless 
telecommunications. Among its goals are to provide customers 
with simpler billing statements, reduce the chances of double 
taxation of wireless telecommunications services, and simplify 
and reduce the costs of tax administration for carriers and 
State and local governments.

                Background and Need for the Legislation

    Over the last decade there has been an explosion of growth 
in the wireless telecommunications industry. Wireless 
subscribership has increased from approximately 4 million 
customers in 1990 to more than 80 million today. Revenues for 
the wireless carriers have grown three-fold over this time 
period, while the price per minute for wireless service has 
dropped substantially. The popularity of wireless services has 
placed a spotlight on the method by which wireless telephone 
calls are taxed by State and local governments.
    Many States and localities levy taxes on the consumption of 
wireless services that occur within their respective 
jurisdictions. For instance, States and localities might 
require a wireless telephone subscriber to pay a tax on the 
total wireless service ``used'' within their jurisdictions. In 
these circumstances, wireless service providers act on behalf 
of the State and localities to collect the taxes from end-
users. Usually, wireless service providers will provide a line-
item on the customer's bill identifying the State or locality 
imposed tax that has been collected and remitted to the taxing 
jurisdiction.
    The nature of wireless telecommunications makes the 
collection of these taxes complicated and expensive for the 
carriers, and difficult for the taxing authorities to monitor. 
This is in part because different taxing jurisdictions use 
different methods for determining when a tax is due. Some tax 
all calls made by customers whose billing address falls within 
their jurisdiction; others tax calls originated in their 
jurisdiction. Determining the proper tax will at a minimum 
require the carrier to first determine where the sale and 
purchase of the mobile service was made. Having identified that 
location, the carrier must then correctly match the location to 
the boundaries of the various local taxing jurisdictions in a 
State that permits local taxation of wireless 
telecommunications. While making these determinations is 
technically possible, it entails considerable expense both for 
the carrier and the taxing authority, which must audit the 
carrier's remittance obligations. This issue may become even 
more complex as the use of wireless service increases and new 
calling plans are developed to meet consumer demand (e.g., flat 
rate calling plans vs. per minute fees). For example, the new 
calling plans featuring block time calling options (e.g., 500 
minutes for a set price) decrease the ability to apportion the 
cost of each wireless call, making it more difficult properly 
to determine and collect traditional taxes.
    In addition to these difficulties in accurately determining 
a tax collection obligation, the current taxing system can 
result in multiple jurisdictions claiming authority to tax the 
same wireless transaction, while other transactions may be 
subject to no taxation. Take, for example, the circumstance 
where a customer whose billing address is within a jurisdiction 
which taxes all calls billed to that address originates a call 
through a cell tower in a jurisdiction which taxes all calls 
originated on cells within the jurisdiction, but the switch 
that first directs the call is located in a jurisdiction which 
taxes all calls originating through a switch in the 
jurisdiction. Because wireless service providers are currently 
required to bill their subscribers based on each of these 
differing methodologies, the entire value of the customer's 
call will be taxed by all three jurisdictions.
The Proposed Solution
    Given these and other practical difficulties, the wireless 
industry sought development of a taxing system that would 
lessen the burden of having to determine the location of sale 
and purchase of each wireless call and the taxes applicable to 
each call. This effort captured the attention of State and 
local tax administrators who desire to have existing tax 
systems better match current business practices and reality. 
They jointly developed a proposed solution which is reflected 
in this legislation.
    In a nutshell, the industry/government proposal would 
identify the mobile telephone customer's ``place of primary 
use'' and require that taxation of calls made by that customer 
be imposed only by the taxing authorities which have 
jurisdiction in that location. It would also facilitate the 
creation and maintenance of a database which would indicate for 
each location what taxes apply. Using this system, it would no 
longer be necessary to determine where the call was placed.
Need for Congressional Action
    Unfortunately, while efficient and practical, this scheme 
is constitutionally suspect under current Supreme Court 
jurisprudence. Article I, section 8, clause 3 of the 
Constitution expressly authorizes Congress to ``regulate 
Commerce with foreign Nations, and among the several States.'' 
This clause has also been held to prohibit certain State 
actions that interfere with interstate commerce. South Carolina 
State Highway Dept. v. Barnwell Brothers, Inc., 303 U.S. 177, 
185 (1938). A State tax will withstand scrutiny under the 
Commerce Clause if the tax: (1) is applied to an activity with 
a substantial nexus with the taxing State; (2) is fairly 
apportioned; (3) does not discriminate against interstate 
commerce; and (4) is fairly related to the services provided by 
the State. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 
(1977). A tax that does not meet this test would be considered 
to impose an undue burden on interstate commerce, which only 
Congress may do.
    In Goldberg v. Sweet, 488 U.S. 252 (1989), the Supreme 
Court applied the Complete Auto Transit test to State taxation 
of interstate telecommunication services. It held that taxing 
authority rested with a State from which a telecommunication 
originated or terminated, provided that State was also the 
State of the service address or the billing address. Id. at 
263-64. While the Court did not deny the possibility that 
taxing nexus might arise in other ways, it did specifically 
note that a State through which the telecommunication merely 
passes or in which the telecommunication merely terminates 
lacks sufficient contacts to tax the telecommunication service. 
Id. at 263.
    H.R. 4391's proposed scheme would permit a State to tax a 
mobile telecommunication which neither originated nor 
terminated within its jurisdiction. Thus, it would not meet the 
Goldberg test of origination/termination and service or billing 
address, bringing into question whether it would be considered 
an unconstitutional burden on interstate commerce. This, of 
course, does not mean that the taxing jurisdiction in which the 
customer's ``primary place of use'' is located would not meet 
the Complete Auto Transit test. The courts could find 
alternatively that the ``substantial nexus'' prong of the 
analysis is satisfied because the taxing jurisdiction is the 
place where the contractual obligation arises which in effect 
allows the customer to make the call which originates and 
terminates elsewhere. The committee does not pretend to predict 
how the judicial branch might view such an argument, and 
expresses no view on its merits. Instead, the committee 
believes that enactment of this legislation is appropriate, as 
it will constitute Congressional consent to a State taxation 
scheme that might otherwise violate the Commerce Clause. The 
Supreme Court has clearly held that such consent is effective. 
See Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 434 (1946).

                                Hearings

    The committee's Subcommittee on Commercial and 
Administrative Law held a hearing on H.R. 3489, legislation 
addressing similar subject matter, on May 4, 2000. Testimony 
was received from Congressman Chip Pickering, principal sponsor 
of that bill; Ray Scheppach, on behalf of the National 
Governors' Association; Thomas Wheeler, President and CEO of 
the Cellular Telecommunications Industry Association; Harley 
Duncan, on behalf of the Federation of Tax Administrators; and 
Joseph Brooks, representing the National League of Cities.

                        Committee Consideration

    On May 11, 2000, the Subcommittee on Commercial and 
Administrative Law met in open session and ordered favorably 
reported the bill H.R. 4391, as amended, by a voice vote, a 
quorum being present. On May 24, 2000, the committee met in 
open session and ordered favorably reported the bill H.R. 4391 
with amendment by voice vote, a quorum being present.

                         Vote of the Committee

    There were no recorded votes held during the consideration 
of H.R. 4391 by the committee.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the committee reports that the 
findings and recommendations of the committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                Committee on Government Reform Findings

    No findings or recommendations of the Committee on 
Government Reform were received as referred to in clause 
3(c)(4) of rule XIII of the Rules of the House of 
Representatives.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the committee sets forth, with 
respect to the bill, H.R. 4391, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 5, 2000.
Hon. Henry J. Hyde, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4391, the Mobile 
Telecommunications Sourcing Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark Hadley 
(for federal costs), who can be reached at 226-2860, Hester 
Grippando (for revenues), who can be reached at 226-2720, 
Shelley Finlayson (for the state and local impact), who can be 
reached at 225-3220, and Jean Wooster (for the private-sector 
impact), who can be reached at 226-2940.
            Sincerely,
                                  Dan L. Crippen, Director.

cc:
        Honorable John Conyers Jr.
        Ranking Democratic Member
H.R. 4391--Mobile Telecommunications Sourcing Act.

                                SUMMARY

    CBO estimates that enactment of H.R. 4391 would have a 
negligible effect on the federal budget. Two years after 
enactment, H.R. 4391 would prohibit state and local governments 
from taxing mobile telecommunications calls unless a customer's 
place of primary telephone use is within the taxing 
jurisdiction of the state or local government. The bill would 
encourage states to provide mobile telephone companies with a 
database that shows which addresses fall within which taxing 
jurisdictions. Mobile telephone companies would be held 
harmless for any mistakes in taxes collected because of errors 
in the database, or from errors they might make before a state 
provides such a database.
    Certain charges imposed on telecommunications services 
either by states or the federal government under the 
Telecommunications Act of 1996 to support universal service are 
recorded in the federal budget. (Universal Service is a program 
intended to promote the availability of telecommunications 
services at affordable rates.) Because H.R. 4391 could affect 
direct spending and receipts, pay-as-you-go procedures would 
apply, but CBO estimates that any such effects would be 
negligible.
    H.R. 4391 contains an intergovernmental mandate as defined 
in the Unfunded Mandates Reform Act (UMRA), because it would 
preempt state and local government laws by prohibiting 
jurisdictions from taxing mobile telecommunication services 
unless the jurisdictions contain the customer's place of 
primary use. While data are limited, CBO estimates the mandate 
would not impose significant net costs on state or local 
governments and would not exceed the threshold established in 
UMRA ($55 million in 2000, adjusted annually for inflation). 
The bill contains no new private-sector mandates as defined in 
UMRA.

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    Under the Universal Service Fund established by the 
Telecommunications Act of 1996, the Federal Communications 
Commission (FCC) seeks to provide universal access to 
telecommunications services through various charges to some 
telephone companies and payments to others. The 1996 act also 
permits states to establish additional collections and payments 
to preserve and advance universal service, so long as these 
mechanisms are not inconsistent with federal law.
    The Universal Service Fund records these transactions on 
the federal budget as governmental receipts and direct 
spending. To the extent that states choose to use charges on 
mobile telecommunications service to support universal service, 
H.R. 4391 could result in reduced revenues collected and lower 
direct spending. But based on information from the FCC and the 
Universal Service Administrative Company, CBO estimates that 
any change in revenues and direct spending as a result of 
enacting this legislation would be negligible. The costs of 
this legislation fall within budget function 370 (commerce and 
housing credit).

                      PAY-AS-YOU-GO CONSIDERATIONS

    The Balanced Budget and Emergency Deficit Control Act sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts. As noted above, H.R. 4391 could affect 
direct spending and receipts, but CBO estimates that any such 
effects would be negligible.

        ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

    H.R. 4391 would preempt state and local government laws by 
prohibiting jurisdictions from taxing mobile telecommunication 
services unless the jurisdictions contain the customer's place 
of primary use. Such a preemption would be a mandate as defined 
by UMRA. This change could initially benefit some taxing 
jurisdictions and harm others depending on the number of 
customers with places of primary use within each jurisdiction. 
The bill would not require or prohibit state and local 
governments from taxing telecommunications services or affect 
the rate at which such services could be taxed. It would, 
however, require a uniform basis for determinating which 
jurisdictions may tax mobile telecommunications services.
    Because the current system of taxing mobile 
telecommunications services is very complex, it is unclear what 
affect this change may have on revenues from such taxes. Based 
on information from groups representing the affected state and 
local governments, however, CBO estimates that the bill would, 
in total, be approximately revenue neutral across the country, 
although the distribution of revenues among jurisdictions would 
likely change.

                 ESTIMATED IMPACT ON THE PRIVATE SECTOR

    The bill contains no new private-sector mandates as defined 
in UMRA.

                         PREVIOUS CBO ESTIMATES

    On May 22, 2000, CBO transmitted a cost estimate of H.R. 
3489, the Wireless Telecommunications Sourcing Act, as ordered 
reported by the House Committee on Commerce on May 17, 2000. On 
May 9, 2000, CBO transmitted a cost estimate of S. 1755, the 
Mobile Telecommunications Sourcing Act, as ordered reported by 
the Senate Committee on Commerce, Science, and Transportation 
on April 13, 2000. H.R. 4391 is nearly identical to S. 1755 and 
to the provisions of the Commerce Committee version of H.R. 
3489 that concern state taxation of mobile telephone services, 
and our cost estimates are the same for these provisions. H.R. 
3489, as ordered reported by the House Committee on Commerce, 
also contains provisions concerning electronic eavesdropping.

                         ESTIMATE PREPARED BY:

Federal Costs: Mark Hadley (226-2860)
Revenues: Hester Grippando (226-2720)
Impact on State, Local, and Tribal Governments: Shelley 
        Finlayson (225-3220)
Impact on the Private Sector: Jean Wooster (226-2940)

                         ESTIMATE APPROVED BY:

Peter H. Fontaine
Deputy Assistant Director for Budget Analysis

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the committee finds the authority for 
this legislation in Article I, clause 8, section 3 of the 
Constitution.

               Section-by-Section Analysis and Discussion

    Section 1 of the Act contains the short title, the Mobile 
Telecommunications Sourcing Act.
    Section 2 of the Act contains the operative portions of the 
bill. It amends Title 4 of the U.S. Code to add the following 
new sections:
    Section 116. Application of title. Generally, the bill 
applies to ``any tax, charge or fee levied by a taxing 
jurisdiction as a fixed charge for each customer or measured by 
gross amounts charged to customers,'' regardless of whether the 
charge is imposed upon the vendor or the customer, and 
regardless of how the charge is named or described. As the bill 
is intended to apply to transactional taxes, taxes measured by 
net income, capital stock, net worth or property value are 
excluded, as are taxes ``applied to an equitably apportioned 
gross amount that is not determined on a transactional basis.''
    Section 116(c) provides that the situsing of prepaid 
calling card services and air-to-ground radiotelephone services 
is not covered by the bill, and that the taxability of sales or 
resales of cellular services where the Internet Tax Freedom Act 
would preclude the taxation of charges for cellular services is 
not affected by the bill.
    Section 117. Sourcing rules. This section provides that 
cellular services may be taxed by ``the taxing jurisdictions 
whose territorial limits encompass the customer's place of 
primary use,'' regardless of where the calls originate, 
terminate or pass through, and that no other taxing 
jurisdictions may tax that service. Thus, if a customer, whose 
place of primary use is in Pittsburgh, Pa., initiates a call to 
California while driving in Virginia, and during the call also 
drives through Washington, D.C. and into Maryland, that call, 
along with all the other cellular calls included within the 
customer's bill from his cellular provider, could be taxed only 
by the taxing jurisdictions representing that customer's place 
of primary use in Pittsburgh.
    Section 118. Limitations. The bill is not intended to 
expand the authority of States to tax, or to preempt the 
States' authority to tax, except as expressly provided in the 
bill. As this section provides that this bill does not 
authorize a taxing jurisdiction to impose a tax that the laws 
of the jurisdiction do not authorize the jurisdiction to 
impose, it is anticipated that States will have to adjust their 
laws accordingly, e.g., if a State's laws do not permit the 
taxation of calls that neither originate nor terminate within 
the State.
    Section 119. Electronic databases for nationwide standard 
numeric jurisdictional codes. This section provides that States 
(or a designated entity acting on behalf of local taxing 
jurisdictions) may provide vendors with an electronic database 
that designates, for every street address in the State, the 
appropriate taxing jurisdictions encompassing that address, and 
that vendors will be held harmless for errors in assigning 
taxing jurisdictions resulting from the use of such a database 
provided by a State. The section also delineates the 
technological standards that a State-provided database must 
meet, and provides requirements to be met by States and vendors 
when there are changes to the database.
    Section 120. Procedure where no electronic database 
provided. If a State does not provide the electronic database 
described in section 119, a vendor could still be held harmless 
for errors resulting from the misassignment of taxing 
jurisdictions if the vendor employs an ``enhanced zip code,'' 
i.e., a zip code of nine or more digits, to assign street 
addresses to taxing jurisdictions, and does so with due 
diligence. The bill contains a rebuttable presumption that a 
vendor has exercised due diligence in its use of enhanced zip 
codes if the vendor can demonstrate that it (1) expended 
reasonable resources to maintain a database of assignments to 
taxing jurisdictions, (2) maintained reasonable internal 
controls to correct misassignments, and (3) used all reasonably 
obtainable data pertaining to municipal annexations and other 
changes in boundaries that affect the accuracy of the database.
    Section 120(b) provides that, if a vendor has been entitled 
to the hold harmless for its use of enhanced zip codes under 
section 120(a), and a State then provides an electronic 
database under section 119, that vendor will continue to be 
held harmless while diligently using the enhanced zip codes, 
until the later of 18 months after a nationwide numeric code 
has been approved as required under the bill, or 6 months after 
the State has provided the database.
    Section 121. Correction of erroneous data for place of 
primary use. This section addresses situations in which taxing 
jurisdictions discover errors in designations of place of 
primary use or assignments of taxing jurisdictions. If a taxing 
jurisdiction determines that an address provided as the place 
of primary use does not meet the statutory definition of that 
term, the jurisdiction may give binding notice to the vendor to 
correct that place of primary use on a prospective basis, 
provided that the customer in question is given an opportunity 
to demonstrate that the supplied address is actually the 
correct place of primary use, and that, when it is a local 
taxing jurisdiction that makes the determination of an 
incorrect place of primary use, that jurisdiction must obtain 
the consent of all other affected taxing jurisdictions. Also, 
when a taxing jurisdiction determines that the assignment of a 
taxing jurisdiction by a vendor using enhanced zip codes is 
incorrect, the jurisdiction can give binding notice to the 
vendor to make the change on a prospective basis, under the 
same provisos regarding consent of other local jurisdictions 
and giving the vendor an opportunity to show that its original 
assignment was actually correct.
    Section 122. Duty of home service provider regarding place 
of primary use. Subsection (a) provides that a vendor is 
responsible for obtaining and maintaining its customers' place 
of primary use, and that, if a vendor's reliance on information 
provided by a customer regarding the customer's place of 
primary use is in good faith, the vendor would not be liable 
for any additional taxes based on a different determination of 
the customer's place of primary use for taxes ``that are 
customarily passed on to the customer as a separate itemized 
charge.''
    Subsection (b) includes a grandfathering provision, which 
allows a vendor to treat an address it has been using for a 
customer, under a contract in effect 2 years after the date of 
the enactment of this act, as that customer's place of primary 
use for the remaining term of the contract, excluding 
extensions or renewals.
    Section 123. Scope; special rules. This section contains a 
few special rules, the more important of which include the 
following: (a) That nothing in the bill prevents taxing 
jurisdictions from collecting a tax from a customer that has 
failed to provide the correct place of primary use; and (b) 
that, if a jurisdiction does not tax cellular service, but the 
cellular service is bundled with other taxable services, the 
cellular service ``may be'' subjected to tax, unless the vendor 
can identify the nontaxable services from its books and 
records.
    Section 124. Definitions. Section 124 provides definitions 
for various terms used in the operative section of the bill, 
including the following:
          Charges for Mobile Telecommunications Services. While 
        calls from airplanes are not covered by the bill (see 
        section 116(c)(3)), calls employing satellites would 
        be, as the Federal regulatory definition of 
        ``commercial mobile radio service'' referred to in 
        section 124(1) includes calls employing both satellites 
        alone and satellites in conjunction with earth 
        stations.
          Place of primary use. The place of primary use will 
        be a street address, either a residential street 
        address or a business street address, whichever is 
        ``representative'' of where the customer's use 
        primarily occurs. This language reflects that many, if 
        not most, cell phones are used in transit from one 
        place to another, perhaps from home to work, so that 
        the place of primary use should represent the primary 
        use, as between the customer's residence and primary 
        business address. As noted above, section 122(a) allows 
        a vendor to rely on the place of primary use provided 
        by the customer, if the vendor does so in good faith.
          Reseller. The bill is not intended to source cellular 
        services provided to entities that resell those 
        services. The definition of ``customer'' excludes 
        resellers, and ``reseller'' is defined in the bill 
        essentially as a provider who purchases 
        telecommunications services from another 
        telecommunications service provider and then resells 
        those services.
    Section 125. Nonseverability. This section provides 
essentially that, if a court enters a final, non-appealable 
judgment on the merits, based on Federal law, that 
``substantially limits or impairs the essential elements of 
this title,'' the whole act would become null and void as of 
the time of the entry of the final judgment. Thus, for example, 
if the sourcing provision of the bill is determined to be 
unconstitutional, the hold-harmless provisions would not remain 
in effect.
    Section 126. No inference. This section provides that the 
bill does not affect the Internet Tax Freedom Act or the 
Telecommunications Act of 1996.
    Section 3 of the Act contains the effective date for the 
legislation. The bill would apply to customers' bills issued 
after the first day of the first month beginning more than 2 
years after the date of enactment. This provision was intended 
to give States time to develop the electronic databases, if 
they choose to do so.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, 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 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

                CHAPTER 4 OF TITLE 4, UNITED STATES CODE

                         CHAPTER 4--THE STATES

Sec.
101.  Oath by members of legislatures and officers.
     * * * * * * *
115.  Limitation on State authority to tax compensation paid to 
          individuals performing services at Fort Campbell, Kentucky.
116. Rules for determining State and local government treatment of 
          charges related to mobile telecommunications services.
117. Sourcing rules.
118. Limitations.
119. Electronic databases for nationwide standard numeric jurisdictional 
          codes.
120. Procedure if no electronic database provided.
121. Correction of erroneous data for place of primary use.
122. Determination of place of primary use.
123. Scope; special rules.
124. Definitions.
125. Nonseverability.
126. No inference.
     * * * * * * *

Sec. 116. Rules for determining State and local government treatment of 
                    charges related to mobile telecommunications 
                    services

    (a) Application of This Section Through Section 126.--This 
section through 126 of this title apply to any tax, charge, or 
fee levied by a taxing jurisdiction as a fixed charge for each 
customer or measured by gross amounts charged to customers for 
mobile telecommunications services, regardless of whether such 
tax, charge, or fee is imposed on the vendor or customer of the 
service and regardless of the terminology used to describe the 
tax, charge, or fee.
    (b) General Exceptions.--This section through 126 of this 
title do not apply to--
            (1) any tax, charge, or fee levied upon or measured 
        by the net income, capital stock, net worth, or 
        property value of the provider of mobile 
        telecommunications service;
            (2) any tax, charge, or fee that is applied to an 
        equitably apportioned amount that is not determined on 
        a transactional basis;
            (3) any tax, charge, or fee that represents 
        compensation for a mobile telecommunications service 
        provider's use of public rights of way or other public 
        property, provided that such tax, charge, or fee is not 
        levied by the taxing jurisdiction as a fixed charge for 
        each customer or measured by gross amounts charged to 
        customers for mobile telecommunication services;
            (4) any generally applicable business and 
        occupation tax that is imposed by a State, is applied 
        to gross receipts or gross proceeds, is the legal 
        liability of the home service provider, and that 
        statutorily allows the home service provider to elect 
        to use the sourcing method required in this section 
        through 126 of this title;
            (5) any fee related to obligations under section 
        254 of the Communications Act of 1934; or
            (6) any tax, charge, or fee imposed by the Federal 
        Communications Commission.
    (c) Specific Exceptions.--This section through 126 of this 
title--
            (1) do not apply to the determination of the taxing 
        situs of prepaid telephone calling services;
            (2) do not affect the taxability of either the 
        initial sale of mobile telecommunications services or 
        subsequent resale of such services, whether as sales of 
        such services alone or as a part of a bundled product, 
        if the Internet Tax Freedom Act would preclude a taxing 
        jurisdiction from subjecting the charges of the sale of 
        such services to a tax, charge, or fee, but this 
        section provides no evidence of the intent of Congress 
        with respect to the applicability of the Internet Tax 
        Freedom Act to such charges; and
            (3) do not apply to the determination of the taxing 
        situs of air-ground radiotelephone service as defined 
        in section 22.99 of title 47 of the Code of Federal 
        Regulations as in effect on June 1, 1999.

Sec. 117. Sourcing rules

    (a) Treatment of Charges for Mobile Telecommunications 
Services.--Notwithstanding the law of any State or political 
subdivision of any State, mobile telecommunications services 
provided in a taxing jurisdiction to a customer, the charges 
for which are billed by or for the customer's home service 
provider, shall be deemed to be provided by the customer's home 
service provider.
    (b) Jurisdiction.--All charges for mobile 
telecommunications services that are deemed to be provided by 
the customer's home service provider under sections 116 through 
126 of this title are authorized to be subjected to tax, 
charge, or fee by the taxing jurisdictions whose territorial 
limits encompass the customer's place of primary use, 
regardless of where the mobile telecommunication services 
originate, terminate, or pass through, and no other taxing 
jurisdiction may impose taxes, charges, or fees on charges for 
such mobile telecommunications services.

Sec. 118. Limitations

    Sections 116 through 126 of this title do not--
            (1) provide authority to a taxing jurisdiction to 
        impose a tax, charge, or fee that the laws of such 
        jurisdiction do not authorize such jurisdiction to 
        impose; or
            (2) modify, impair, supersede, or authorize the 
        modification, impairment, or supersession of the law of 
        any taxing jurisdiction pertaining to taxation except 
        as expressly provided in sections 116 through 126 of 
        this title.

Sec. 119. Electronic databases for nationwide standard numeric 
                    jurisdictional codes

    (a) Electronic Database.--
            (1)  Provision of database.--A State may provide an 
        electronic database to a home service provider or, if a 
        State does not provide such an electronic database to 
        home service providers, then the designated database 
        provider may provide an electronic database to a home 
        service provider.
            (2) Format.--(A) Such electronic database, whether 
        provided by the State or the designated database 
        provider, shall be provided in a format approved by the 
        American National Standards Institute's Accredited 
        Standards Committee X12, that, allowing for de minimis 
        deviations, designates for each street address in the 
        State, including to the extent practicable, any 
        multiple postal street addresses applicable to one 
        street location, the appropriate taxing jurisdictions, 
        and the appropriate code for each taxing jurisdiction, 
        for each level of taxing jurisdiction, identified by 
        one nationwide standard numeric code.
            (B) Such electronic database shall also provide the 
        appropriate code for each street address with respect 
        to political subdivisions which are not taxing 
        jurisdictions when reasonably needed to determine the 
        proper taxing jurisdiction.
            (C) The nationwide standard numeric codes shall 
        contain the same number of numeric digits with each 
        digit or combination of digits referring to the same 
        level of taxing jurisdiction throughout the United 
        States using a format similar to FIPS 55-3 or other 
        appropriate standard approved by the Federation of Tax 
        Administrators and the Multistate Tax Commission, or 
        their successors. Each address shall be provided in 
        standard postal format.
    (b) Notice; Updates.--A State or designated database 
provider that provides or maintains an electronic database 
described in subsection (a) shall provide notice of the 
availability of the then current electronic database, and any 
subsequent revisions thereof, by publication in the manner 
normally employed for the publication of informational tax, 
charge, or fee notices to taxpayers in such State.
    (c) User Held Harmless.--A home service provider using the 
data contained in an electronic database described in 
subsection (a) shall be held harmless from any tax, charge, or 
fee liability that otherwise would be due solely as a result of 
any error or omission in such database provided by a State or 
designated database provider. The home service provider shall 
reflect changes made to such database during a calendar quarter 
not later than 30 days after the end of such calendar quarter 
for each State that issues notice of the availability of an 
electronic database reflecting such changes under subsection 
(b).

Sec. 120. Procedure if no electronic database provided

    (a) Safe Harbor.--If neither a State nor designated 
database provider provides an electronic database under section 
119, a home service provider shall be held harmless from any 
tax, charge, or fee liability in such State that otherwise 
would be due solely as a result of an assignment of a street 
address to an incorrect taxing jurisdiction if, subject to 
section 121, the home service provider employs an enhanced zip 
code to assign each street address to a specific taxing 
jurisdiction for each level of taxing jurisdiction and 
exercises due diligence at each level of taxing jurisdiction to 
ensure that each such street address is assigned to the correct 
taxing jurisdiction. If an enhanced zip code overlaps 
boundaries of taxing jurisdictions of the same level, the home 
service provider must designate one specific jurisdiction 
within such enhanced zip code for use in taxing the activity 
for such enhanced zip code for each level of taxing 
jurisdiction. Any enhanced zip code assignment changed in 
accordance with section 121 is deemed to be in compliance with 
this section. For purposes of this section, there is a 
rebuttable presumption that a home service provider has 
exercised due diligence if such home service provider 
demonstrates that it has--
            (1) expended reasonable resources to implement and 
        maintain an appropriately detailed electronic database 
        of street address assignments to taxing jurisdictions;
            (2) implemented and maintained reasonable internal 
        controls to promptly correct misassignments of street 
        addresses to taxing jurisdictions; and
            (3) used all reasonably obtainable and usable data 
        pertaining to municipal annexations, incorporations, 
        reorganizations and any other changes in jurisdictional 
        boundaries that materially affect the accuracy of such 
        database.
    (b) Termination of Safe Harbor.--Subsection (a) applies to 
a home service provider that is in compliance with the 
requirements of subsection (a), with respect to a State for 
which an electronic database is not provided under section 119 
until the later of--
            (1) 18 months after the nationwide standard numeric 
        code described in section 119(a) has been approved by 
        the Federation of Tax Administrators and the Multistate 
        Tax Commission; or
            (2) 6 months after such State or a designated 
        database provider in such State provides such database 
        as prescribed in section 119(a).

Sec. 121. Correction of erroneous data for place of primary use

    (a) In General.--A taxing jurisdiction, or a State on 
behalf of any taxing jurisdiction or taxing jurisdictions 
within such State, may--
            (1) determine that the address used for purposes of 
        determining the taxing jurisdictions to which taxes, 
        charges, or fees for mobile telecommunications services 
        are remitted does not meet the definition of place of 
        primary use in section 124(8) and give binding notice 
        to the home service provider to change the place of 
        primary use on a prospective basis from the date of 
        notice of determination if--
                    (A) if the taxing jurisdiction making such 
                determination is not a State, such taxing 
                jurisdiction obtains the consent of all 
                affected taxing jurisdictions within the State 
                before giving such notice of determination; and
                    (B) before the taxing jurisdiction gives 
                such notice of determination, the customer is 
                given an opportunity to demonstrate in 
                accordance with applicable State or local tax, 
                charge, or fee administrative procedures that 
                the address is the customer's place of primary 
                use;
            (2) determine that the assignment of a taxing 
        jurisdiction by a home service provider under section 
        120 does not reflect the correct taxing jurisdiction 
        and give binding notice to the home service provider to 
        change the assignment on a prospective basis from the 
        date of notice of determination if--
                    (A) if the taxing jurisdiction making such 
                determination is not a State, such taxing 
                jurisdiction obtains the consent of all 
                affected taxing jurisdictions within the State 
                before giving such notice of determination; and
                    (B) the home service provider is given an 
                opportunity to demonstrate in accordance with 
                applicable State or local tax, charge, or fee 
                administrative procedures that the assignment 
                reflects the correct taxing jurisdiction.

Sec.  122. Determination of place of primary use

    (a) Place of Primary Use.--A home service provider shall be 
responsible for obtaining and maintaining the customer's place 
of primary use (as defined in section 124). Subject to section 
121, and if the home service provider's reliance on information 
provided by its customer is in good faith, a taxing 
jurisdiction shall--
            (1) allow a home service provider to rely on the 
        applicable residential or business street address 
        supplied by the home service provider's customer; and
            (2) not hold a home service provider liable for any 
        additional taxes, charges, or fees based on a different 
        determination of the place of primary use for taxes, 
        charges or fees that are customarily passed on to the 
        customer as a separate itemized charge.
    (b) Address Under Existing Agreements.--Except as provided 
in section 121, a taxing jurisdiction shall allow a home 
service provider to treat the address used by the home service 
provider for tax purposes for any customer under a service 
contract or agreement in effect 2 years after the date of 
enactment of the Mobile Telecommunications Sourcing Act as that 
customer's place of primary use for the remaining term of such 
service contract or agreement, excluding any extension or 
renewal of such service contract or agreement, for purposes of 
determining the taxing jurisdictions to which taxes, charges, 
or fees on charges for mobile telecommunications services are 
remitted.

Sec. 123. Scope; special rules

    (a) Act Does Not Supersede Customer's Liability to Taxing 
Jurisdiction.--Nothing in sections 116 through 126 modifies, 
impairs, supersedes, or authorizes the modification, 
impairment, or supersession of, any law allowing a taxing 
jurisdiction to collect a tax, charge, or fee from a customer 
that has failed to provide its place of primary use.
    (b) Additional Taxable Charges.--If a taxing jurisdiction 
does not otherwise subject charges for mobile 
telecommunications services to taxation and if these charges 
are aggregated with and not separately stated from charges that 
are subject to taxation, then the charges for nontaxable mobile 
telecommunications services may be subject to taxation unless 
the home service provider can reasonably identify charges not 
subject to such tax, charge, or fee from its books and records 
that are kept in the regular course of business.
    (c) Nontaxable Charges.--If a taxing jurisdiction does not 
subject charges for mobile telecommunications services to 
taxation, a customer may not rely upon the nontaxability of 
charges for mobile telecommunications services unless the 
customer's home service provider separately states the charges 
for nontaxable mobile telecommunications services from taxable 
charges or the home service provider elects, after receiving a 
written request from the customer in the form required by the 
provider, to provide verifiable data based upon the home 
service provider's books and records that are kept in the 
regular course of business that reasonably identifies the 
nontaxable charges.

Sec. 124. Definitions

    In sections 116 through 126 of this title:
            (1) Charges for mobile telecommunications 
        services.--The term ``charges for mobile 
        telecommunications services'' means any charge for, or 
        associated with, the provision of commercial mobile 
        radio service, as defined in section 20.3 of title 47 
        of the Code of Federal Regulations as in effect on June 
        1, 1999, or any charge for, or associated with, a 
        service provided as an adjunct to a commercial mobile 
        radio service, that is billed to the customer by or for 
        the customer's home service provider regardless of 
        whether individual transmissions originate or terminate 
        within the licensed service area of the home service 
        provider.
            (2) Customer.--
                    (A) In general.--The term ``customer'' 
                means--
                            (i) the person or entity that 
                        contracts with the home service 
                        provider for mobile telecommunications 
                        services; or
                            (ii) if the end user of mobile 
                        telecommunications services is not the 
                        contracting party, the end user of the 
                        mobile telecommunications service, but 
                        this clause applies only for the 
                        purpose of determining the place of 
                        primary use.
                    (B) The term ``customer'' does not 
                include--
                            (i) a reseller of mobile 
                        telecommunications service; or
                            (ii) a serving carrier under an 
                        arrangement to serve the customer 
                        outside the home service provider's 
                        licensed service area.
            (3) Designated database provider.--The term 
        ``designated database provider'' means a corporation, 
        association, or other entity representing all the 
        political subdivisions of a State that is--
                    (A) responsible for providing an electronic 
                database prescribed in section 119(a) if the 
                State has not provided such electronic 
                database; and
                    (B) approved by municipal and county 
                associations or leagues of the State whose 
                responsibility it would otherwise be to provide 
                such database prescribed by sections 116 
                through 126 of this title.
            (4) Enhanced zip code.--The term ``enhanced zip 
        code'' means a United States postal zip code of 9 or 
        more digits.
            (5) Home service provider.--The term ``home service 
        provider'' means the facilities-based carrier or 
        reseller with which the customer contracts for the 
        provision of mobile telecommunications services.
            (6) Licensed service area.--The term ``licensed 
        service area'' means the geographic area in which the 
        home service provider is authorized by law or contract 
        to provide commercial mobile radio service to the 
        customer.
            (7) Mobile telecommunications service.--The term 
        ``mobile telecommunications service'' means commercial 
        mobile radio service, as defined in section 20.3 of 
        title 47 of the Code of Federal Regulations as in 
        effect on June 1, 1999.
            (8) Place of primary use.--The term ``place of 
        primary use'' means the street address representative 
        of where the customer's use of the mobile 
        telecommunications service primarily occurs, which must 
        be--
                    (A) the residential street address or the 
                primary business street address of the 
                customer; and
                    (B) within the licensed service area of the 
                home service provider.
            (9) Prepaid telephone calling services.--The term 
        ``prepaid telephone calling service'' means the right 
        to purchase exclusively telecommunications services 
        that must be paid for in advance, that enables the 
        origination of calls using an access number, 
        authorization code, or both, whether manually or 
        electronically dialed, if the remaining amount of units 
        of service that have been prepaid is known by the 
        provider of the prepaid service on a continuous basis.
            (10) Reseller.--The term ``reseller''--
                    (A) means a provider who purchases 
                telecommunications services from another 
                telecommunications service provider and then 
                resells, uses as a component part of, or 
                integrates the purchased services into a mobile 
                telecommunications service; and
                    (B) does not include a serving carrier with 
                which a home service provider arranges for the 
                services to its customers outside the home 
                service provider's licensed service area.
            (11) Serving carrier.--The term ``serving carrier'' 
        means a facilities-based carrier providing mobile 
        telecommunications service to a customer outside a home 
        service provider's or reseller's licensed service area.
            (12) Taxing jurisdiction.--The term ``taxing 
        jurisdiction'' means any of the several States, the 
        District of Columbia, or any territory or possession of 
        the United States, any municipality, city, county, 
        township, parish, transportation district, or 
        assessment jurisdiction, or any other political 
        subdivision within the territorial limits of the United 
        States with the authority to impose a tax, charge, or 
        fee.

Sec. 125. Nonseverability

    If a court of competent jurisdiction enters a final 
judgment on the merits that--
            (1) is based on Federal law;
            (2) is no longer subject to appeal; and
            (3) substantially limits or impairs the essential 
        elements of sections 116 through 126 of this title;
then sections 116 through 126 of this title are invalid and 
have no legal effect as of the date of entry of such judgment.

Sec. 126. No inference

    (a) Internet Tax Freedom Act.--Nothing in sections 116 
through this section of this title shall be construed as 
bearing on Congressional intent in enacting the Internet Tax 
Freedom Act or to modify or supersede the operation of such 
Act.
    (b) Telecommunications Act of 1996.--Nothing in sections 
116 through this section of this title shall limit or otherwise 
affect the implementation of the Telecommunications Act of 1996 
or the amendments made by such Act.

                                
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