II

105TH CONGRESS

2D SESSION S. 1888

To establish a moratorium on exactions that would interfere with the flow

of commerce via the Internet, to establish a commission to develop

a uniform set of definitions and principles for State and local jurisdictions to utilize regarding regulation and taxation of commercial transaction on the Internet, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 31, 1998

Mr. GREGG (for himself and Mr. LIEBERMAN) introduced the following bill;

which was read twice and referred to the Committee on Commerce,

Science, and Transportation

A BILL

To establish a moratorium on exactions that would interfere

with the flow of commerce via the Internet, to establish

a commission to develop a uniform set of definitions

and principles for State and local jurisdictions to utilize

regarding regulation and taxation of commercial transaction on the Internet, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Internet Fairness and

5 Interstate Responsibility Act’’ or ‘‘Net FAIR Act’’.
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1 SEC. 2. FINDINGS.

2 Congress makes the following findings:

3 (1) By exercising its authority under article I,

4 section 8, clause 3 of the United States Constitu5 tion, Congress may best achieve a consistent and co6 herent national policy regarding regulation and tax7 ation of Internet activity and the concomitant uni8 formity, simplicity, and fairness that is needed to

9 avoid burdening this evolving form of interstate and

10 foreign commerce.

11 (2) Because the Federal Government and State

12 and local governments will have numerous reasons to

13 interact over the Internet with the individuals and

14 companies that use it, a lexicon of terms relating to

15 the Internet and its use is vital.

16 (3) A limited number of States have already

17 adopted by law or regulation various forms of taxes

18 that apply to commercial activity that are unique to

19 the Internet or to providers of Internet services.

20 (4) There are approximately 30,000 separate

21 taxing jurisdictions in the United States, thus pre22 senting the potential for an enormous variety of

23 taxes and tax rates on Internet activity.

24 (5) The unique character of the Internet tran25 scends physical and political boundaries and permits

26 commercial and intellectual communications to move
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1 from city to city, State to State, and nation to na2 tion without any set path in a manner that is vir3 tually unparalleled in history.

4 (6) The Internet is a global network that offers

5 the potential for entrepreneurial individuals and

6 small businesses throughout the United States to

7 reach customers and markets throughout the world

8 with their products and services.

9 (7) The United States must create an example

10 for the rest of the world by preventing discrimina11 tory taxation on Internet activities so that the

12 United States can persuade our trading partners to

13 resist the temptation to tax such activities and

14 thereby limit the potential growth of such activities.

15 (8) The innovation and creativity that has

16 helped computer technology evolve into the present17 day Internet has thrived in a tax-free environment

18 and should be granted protection from local, State,

19 and Federal taxation in order to permit this new

20 medium to reach its fullest potential.

21 (9) The President should seek bilateral and

22 multilateral agreements through the World Trade

23 Organization, the Organization for Economic Co24 operation and Development, the Asia Pacific Eco25 nomic Cooperation Council, and other appropriate
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1 international organizations and fora to establish that

2 commercial transactions using the Internet are free

3 from tariff and discriminatory taxation.

4 SEC. 3. MORATORIUM ON IMPOSITION OF TAXES ON INTER5 NET AND INTERNET-RELATED COMPUTER

6 SERVICES.

7 (a) MORATORIUM.—Except as otherwise provided in

8 this section, no State or political subdivision thereof may

9 impose, assess, or attempt to collect a tax directly or indi10 rectly on—

11 (1) the Internet or Internet-related services; or

12 (2) the use of the Internet or Internet-related

13 services.

14 (b) PRESERVATION OF STATE AND LOCAL TAXING

15 AUTHORITY.—Subsection (a)—

16 (1) does not apply to taxes imposed on or meas17 ured by net income derived from the Internet or

18 Internet-related services if such taxes are applied

19 uniformly to all businesses;

20 (2) does not apply to fairly apportioned busi21 ness license taxes applied to businesses having a

22 business location in the taxing jurisdiction if such

23 taxes are applied uniformly to all businesses;

24 (3) does not affect the authority of a State or

25 political subdivision to impose a sales or use tax on
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1 sales or other transactions effected by use of the

2 Internet or Internet-related services if—

3 (A) the tax is the same as the tax gen4 erally imposed and collected by that State or

5 political subdivision thereof on sales or trans6 actions effected by mail order, telephone, or

7 other remote means within its taxing jurisdic8 tion; and

9 (B) the obligation to collect the tax from

10 sales or other transactions effected by use of

11 the Internet or Internet-related services is im12 posed on the same person or entity as in the

13 case of sales or transactions affected by mail

14 order, telephone, or other remote means; and

15 (4) does not apply to taxes on real or personal

16 property used in connection with the providing of

17 Internet or Internet-related services if such taxes are

18 applied to all businesses using real or personal prop19 erty in connection with their businesses.

20 (c) TERMINATION.—The moratorium set forth under

21 subsection (a) shall terminate on December 31, 2001.

22 SEC. 4. COMMISSION ON INTERNET TAXATION AND

23 REGULATION.

24 (a) ESTABLISHMENT.—
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1 (1) IN GENERAL.—There is established a com2 mission to be known as the Commission on Internet

3 Taxation and Regulation (hereafter in this section

4 referred to as the ‘‘Commission’’).

5 (2) MEMBERSHIP.—The Commission shall be

6 composed of 15 members of whom—

7 (A) one shall be the Secretary of Com8 merce;

9 (B) one shall be the Secretary of State;

10 (C) one shall be the Secretary of the

11 Treasury; and

12 (D) twelve shall be appointed by the Presi13 dent without regard to political affiliation, of

14 whom—

15 (i) three shall be the chief executive

16 officer of a State (including at least one

17 who is the chief executive officer of a State

18 that does not impose a sales tax);

19 (ii) three shall be the chief executive

20 officer of a political subdivision of a State

21 (including at least one who is the chief ex22 ecutive officer of a political subdivision

23 that does not impose a sales tax);

24 (iii) three shall be individuals em25 ployed by or affiliated with companies en-
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1 gaged in computer manufacturing activi2 ties, software activities, or activities relat3 ing to the Internet or the provision of

4 Internet-related services; and

5 (iv) three shall be individuals em6 ployed by or affiliated with companies en7 gaged in electronic commerce (including at

8 least one who is employed by or affiliated

9 with a company engaged in mail order

10 commerce).

11 (3) PERIOD OF APPOINTMENT; VACANCIES.—

12 Members shall be appointed for the life of the Com13 mission. Any vacancy in the Commission shall not

14 affect its powers, but shall be filled in the same

15 manner as the original appointment.

16 (4) CHAIRMAN AND VICE CHAIRMAN.—The

17 Commission shall select a Chairman and Vice Chair18 man from among its members.

19 (5) MEETINGS.—The Commission shall meet at

20 the call of the Chairman.

21 (6) QUORUM.—A majority of the members of

22 the Commission shall constitute a quorum, but a

23 lesser number of members may hold hearings.

24 (b) DUTIES.—
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1 (1) IN GENERAL.—The Commission shall have

2 as its duties the following:

3 (A) To conduct a thorough study of tax4 ation and regulation of the Internet and Inter5 net-related services under State and local law

6 and identify any inconsistencies in such tax7 ation or regulation.

8 (B) To consider the effect of current Fed9 eral statutes and regulations on the Internet

10 and Internet-related services and recommend

11 appropriate modifications of such statutes and

12 regulations.

13 (C) To propose model legislation (a so14 called ‘‘Uniform Internet Commercial Code’’)

15 relating to commercial transactions on the

16 Internet and to Internet-related services in

17 order to facilitate uniform treatment of such

18 transactions and such services under Federal

19 law and State law.

20 (2) MODEL LEGISLATION.—The model legisla21 tion under paragraph (1)(C) shall—

22 (A) provide terminology applicable to com23 mercial transactions on the Internet and to

24 Internet-related services;
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1 (B) define the transactions, services, and

2 other activities covered by the legislation; and

3 (C) establish regulatory structures and

4 mechanisms applicable to such transactions,

5 services, and other activities.

6 (3) ADOPTION OF POSITIONS.—The Commis7 sion may not adopt a position with respect to a mat8 ter under this subsection unless the position is ap9 proved by at least 10 members of the Commission.

10 (c) REPORT.—Not later than December 31, 2000, the

11 Commission shall submit to Congress and the President

12 a report on its activities under this section. The report

13 shall—

14 (1) set forth the findings of the Commission

15 under subsection (b)(1)(A);

16 (2) set forth any findings of the Commission

17 under subsection (b)(1)(B), including any rec18 ommendations relating to such findings;

19 (3) set forth the model legislation proposed

20 under subsection (b)(1)(C); and

21 (4) include any additional findings and rec22 ommendations that the Commission considers appro23 priate.

24 (d) POWERS OF COMMISSION.—
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1 (1) HEARINGS.—The Commission may hold

2 such hearings, sit and act at such times and places,

3 take such testimony, and receive such evidence as

4 the Commission considers advisable to carry out the

5 purposes of this section.

6 (2) INFORMATION FROM FEDERAL AGENCIES.—

7 The Commission may secure directly from any Fed8 eral department or agency such information as the

9 Commission considers necessary to carry out the

10 provisions of this section. Upon request of the Chair11 man of the Commission, the head of such depart12 ment or agency shall furnish such information to the

13 Commission.

14 (3) POSTAL SERVICES.—The Commission may

15 use the United States mails in the same manner and

16 under the same conditions as other departments and

17 agencies of the Federal Government.

18 (4) GIFTS.—The Commission may accept, use,

19 and dispose of gifts or donations of services or prop20 erty.

21 (e) COMMISSION PERSONNEL MATTERS.—

22 (1) COMPENSATION OF MEMBERS.—Each mem23 ber of the Commission who is not an officer or em24 ployee of the Federal Government shall be com25 pensated at a rate equal to the daily equivalent of
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1 the annual rate of basic pay prescribed for level IV

2 of the Executive Schedule under section 5315 of title

3 5, United States Code, for each day (including travel

4 time) during which such member is engaged in the

5 performance of the duties of the Commission. All

6 members of the Commission who are officers or em7 ployees of the United States shall serve without com8 pensation in addition to that received for their serv9 ices as officers or employees of the United States.

10 (2) TRAVEL EXPENSES.—The members of the

11 Commission shall be allowed travel expenses, includ12 ing per diem in lieu of subsistence, at rates author13 ized for employees of agencies under subchapter I of

14 chapter 57 of title 5, United States Code, while

15 away from their homes or regular places of business

16 in the performance of services for the Commission.

17 (3) STAFF.—

18 (A) IN GENERAL.—The Chairman of the

19 Commission may, without regard to the civil

20 service laws and regulations, appoint and termi21 nate an executive director and such other addi22 tional personnel as may be necessary to enable

23 the Commission to perform its duties. The em24 ployment of an executive director shall be sub25 ject to confirmation by the Commission.
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1 (B) COMPENSATION.—The Chairman of

2 the Commission may fix the compensation of

3 the executive director and other personnel with4 out regard to the provisions of chapter 51 and

5 subchapter III of chapter 53 of title 5, United

6 States Code, relating to classification of posi7 tions and General Schedule pay rates, except

8 that the rate of pay for the executive director

9 and other personnel may not exceed the rate

10 payable for level V of the Executive Schedule

11 under section 5316 of such title.

12 (4) DETAIL OF GOVERNMENT EMPLOYEES.—

13 Any Federal Government employee may be detailed

14 to the Commission without reimbursement, and such

15 detail shall be without interruption or loss of civil

16 service status or privilege.

17 (5) PROCUREMENT OF TEMPORARY AND INTER18 MITTENT SERVICES.—The Chairman of the Commis19 sion may procure temporary and intermittent serv20 ices under section 3109(b) of title 5, United States

21 Code, at rates for individuals which do not exceed

22 the daily equivalent of the annual rate of basic pay

23 prescribed for level V of the Executive Schedule

24 under section 5316 of such title.
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1 (f) TERMINATION.—The Commission shall terminate

2 90 days after the date on which the Commission submits

3 its report under subsection (c).

4 SEC. 5. DEFINITIONS.

5 In this Act:

6 (1) INTERNET.—The term ‘‘Internet’’ means

7 the computer facilities and telecommunications fa8 cilities, and related equipment and software, com9 prising the interconnected world-wide network of

10 computer networks that employ the Transmission

11 Control Protocol/Internet Protocol, or any prede12 cessor or successor protocol, to transmit information

13 by wire or radio.

14 (2) INTERNET-RELATED SERVICES.—The term

15 ‘‘Internet-related services’’ includes the following:

16 (A) Internet access services, including the

17 storage, processing, and transmission of infor18 mation that enables an individual to make use

19 of the resources found via the Internet.

20 (B) Online services, including the informa21 tion, information processing, electronic com22 merce, and other services available to an indi23 vidual as part of a package of services that are

24 combined with Internet access service and of25 fered to the user for a single price.
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1 (3) TAX.—The term ‘‘tax’’ includes any tax, li2 cense, or fee that is imposed by any governmental

3 entity, and includes the imposition on the seller of

4 an obligation to collect and remit a tax imposed on

5 the buyer.

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