IB
Union Calendar No. 452
105TH CONGRESS
2D SESSION
H. R. 3529
[Report No. 105–808, Part I]
To establish a national policy against State and local interference with inter-
state commerce on the Internet or online services, and to excise congres-
sional jurisdiction over interstate commerce by establishing a moratorium
on the imposition of exactions that would interfere with the free flow
of commerce via the Internet, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 23, 1998
Mr. CHABOT introduced the following bill; which was referred to the Commit-
tee on the Judiciary, and in addition to the Committees on Rules, and
Ways and Means, for a period to be subsequently determined by the
Speaker, in each case for consideration of such provisions as fall within
the jurisdiction of the committee concerned
OCTOBER 10, 1998
Reported from the Committee on the Judiciary with an amendment
[Strike out all after the enacting clause and insert the part printed in italic]
OCTOBER 10, 1998
Referral to the Committees on Rules and Ways and Means extended for a
period ending not later than October 10, 1998
OCTOBER 10, 1998
Committees on Rules and Ways and Means discharged; commmitted to the
Committee of the Whole House on the State of the Union and ordered
to be printed
[For text of introduced bill, see copy of bill as introduced on March 23, 1998]
A BILL
To establish a national policy against State and local inter-
ference with interstate commerce on the Internet or on-
line services, and to excise congressional jurisdiction over
interstate commerce by establishing a moratorium on
the imposition of exactions that would interfere with
the free flow of commerce via the Internet, and for
other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Internet Tax Freedom
Act of 1998’’.
SEC. 2. MORATORIUM ON CERTAIN TAXES.
(a) AMENDMENT.—Title 4 of the United States Code
is amended by adding at the end the following:
‘‘CHAPTER 6—MORATORIUM ON CERTAIN TAXES
‘‘Sec.
‘‘151. Moratorium.
‘‘152. Advisory commission on electronic commerce.
‘‘153. Legislative recommendations.
‘‘154. Expedited consideration of legislative recommendations
‘‘155. Definitions.
‘‘§ 151. Moratorium
‘‘(a) MORATORIUM.—For a period of 3 years following
the date of the enactment of this chapter, neither any State,
nor any political subdivision thereof, shall impose, assess,
collect, or attempt to collect—
‘‘(1) taxes on Internet access;
‘‘(2) bit taxes; or
‘‘(3) multiple or discriminatory taxes on elec-
tronic commerce.
‘‘(b) EXCEPTION
TO MORATORIUM.—(1) Subject to
paragraph (2), the moratorium in subsection (a)(1) shall
not apply to the following taxes (as applicable), as in effect
on the date of the enactment of this chapter, on Internet
access:
‘‘(A) STATE
OF
CONNECTICUT.—Section 12–
407(2)(i)(A) of the General Statutes of Connecticut.
‘‘(B) 
STATE
OF
WISCONSIN.—Section
77.52(2)(a)5 of the Wisconsin Statutes (1995–96).
‘‘(C) STATE OF IOWA.—Section 422.43(1) of the
Code of Iowa (1997).
‘‘(D) STATE OF NORTH DAKOTA.—North Dakota
Century Code 57–39.2 and 57–34.
‘‘(E) STATE OF SOUTH DAKOTA.—South Dakota
Codified Law Annotated 10–45–5.
‘‘(F) STATE OF NEW MEXICO.—New Mexico Stat-
utes Annotated 7–9–3.
‘‘(G) STATE
OF
TENNESSEE.—Tennessee Code
Annotated 67–6–221, 67–6–102(23)(iii), and 67–6–
702(g).
‘‘(H) STATE
OF
OHIO.—Chapter 5739 of the
Ohio Revised Code.
‘‘(2)(A) Paragraph (1) shall apply with respect to a
tax referred to in such paragraph only if the referenced
State enacts, during the 1–year period beginning on the
date of the enactment of this chapter, a law to expressly
affirm that such tax is imposed on Internet access.
‘‘(B) A State that satisfies the requirement specified
in subparagraph (A) shall be deemed to have satisfied such
requirement immediately after the enactment of this chap-
ter, except that such State may not impute penalties or in-
terest on any tax accrued during the period beginning on
the date of the enactment of this Act and ending of the date
such State satisfies such requirement.
‘‘(c) APPLICATION OF MORATORIUM.—Subsection (a)
shall not apply with respect to the provision of Internet
access that is offered for sale as part of a package of services
that includes services other than Internet access, unless the
service provider separately states that portion of the billing
that applies to such services on the user’s bill.
‘‘§ 152. Advisory Commission on Electronic Commerce
‘‘(a) ESTABLISHMENT OF COMMISSION.—There is es-
tablished a temporary commission to be known as the Advi-
sory Commission on Electronic Commerce (in this chapter
referred to as the ‘Commission’). The Commission shall—
‘‘(1) be composed of 31 members appointed in
accordance with subsection (b), including the chair-
person who shall be selected by the members of the
Commission from among individuals specified in sub-
section (b); and
‘‘(2) conduct its business in accordance with the
provisions of this chapter.
‘‘(b) MEMBERSHIP.—
‘‘(1) IN
GENERAL.—The Commissioners shall
serve for the life of the Commission. The membership
of the Commission shall be as follows:
‘‘(A) Three representatives from the Federal
Government comprised of the Attorney General,
the Secretary of Commerce, and the Secretary of
the Treasury, or their respective representatives.
‘‘(B) Fourteen representatives from State,
local, and county governments comprised of 2
representatives each from the National Gov-
ernors’ Association, the National Conference of
State Legislatures, the Council of State Govern-
ments, the National Association of Counties, the
National League of Cities, and the United States
Conferences of Mayors; and 1 representative each
from the International City/County Managers
Association and the American Legislative Ex-
change Council.
‘‘(C) Fourteen representatives of taxpayers
and business—
‘‘(i) 7 of whom shall be appointed
jointly by the Speaker of the House of Rep-
resentatives and the majority leader of the
Senate, of whom 3 shall be individuals em-
ployed by or affiliated with persons engaged
in providing Internet access or communica-
tions or transactions that use the Internet,
3 shall be individuals employed by or affili-
ated with persons engaged in electronic
commerce (including at least 1 who is em-
ployed by or affiliated with a person also
engaged in mail order commerce), and 1
shall be an individual employed by or af-
filiated with a person engaged in software
publishing; and
‘‘(ii) 7 of whom shall be appointed
jointly by the minority leader of the House
of Representatives and the minority leader
of the Senate, of whom 3 shall be individ-
uals employed by or affiliated with persons
engaged in providing Internet access or
communications or transactions that use the
Internet, 3 shall be individuals employed by
or affiliated with persons engaged in elec-
tronic commerce (including at least 1 who
is employed by or affiliated with a person
also engaged in mail order commerce), and
1 shall be an individual employed by or af-
filiated with a person engaged in software
publishing.
‘‘(2) 
APPOINTMENTS.—Appointments 
to 
the
Commission shall be made not later than 45 days
after the date of enactment of this chapter. The chair-
person shall be selected not later than 60 days after
the date of the enactment of this chapter.
‘‘(c) ACCEPTANCE OF GIFTS AND GRANTS.—The Com-
mission may accept, use, and dispose of gifts or grants of
services or property, both real and personal, for purposes
of aiding or facilitating the work of the Commission. Gifts
or grants not used at the expiration of the Commission shall
be returned to the donor or grantor.
‘‘(d) OTHER RESOURCES.—The Commission shall
have reasonable access to materials, resources, data, and
other information from the Department of Justice, the De-
partment of Commerce, and the Department of the Treas-
ury. The Commission shall also have reasonable access to
use the facilities of the Department of Justice, the Depart-
ment of Commerce, and the Department of the Treasury for
purposes of conducting meetings.
‘‘(e) SUNSET.—The existence of the Commission shall
terminate—
‘‘(1) when the last of the committees of jurisdic-
tion referred to in section 154 concludes consideration
of the legislation proposed under section 153; or
‘‘(2) 3 years after the date of the enactment of
this chapter;
whichever occurs first.
‘‘(f) RULES OF THE COMMISSION.—
‘‘(1) Sixteen members of the Commission shall
constitute a quorum for conducting the business of the
Commission.
‘‘(2) Any meetings held by the Commission shall
be duly noticed at least 14 days in advance and shall
be open to the public.
‘‘(3) The Commission may adopt other rules as
needed.
‘‘(g) DUTIES OF THE COMMISSION.—The duties of the
Commission, to be carried out in consultation with the Na-
tional Tax Association Communications and Electronic
Commerce Tax Project, and other interested persons, may
include—
‘‘(1) conducting a thorough study of State and
local taxation of transactions using the Internet and
Internet access;
‘‘(2) examining the collection and administra-
tion of consumption taxes on remote commerce in
other countries and the United States, and the impact
of such collection on the global economy;
‘‘(3) examining the advantages and disadvan-
tages of authorizing States and local governments to
require remote sellers to collect and remit sales and
use taxes;
‘‘(4) proposing a uniform system of definitions of
remote and electronic commerce that may be subject
to sales and use tax within each State;
‘‘(5) examining model State legislation relating
to taxation of transactions using the Internet and
Internet access, including uniform terminology, defi-
nitions of the transactions, services, and other activi-
ties that may be subject to State and local taxation,
procedural structures and mechanisms applicable to
such taxation, and a mechanism for the resolution of
disputes between States regarding matters involving
multiple taxation;
‘‘(6) examining a simplified system for adminis-
tration and collection of sales and use tax for remote
commerce, that incorporates all manner of making
consumer payments, that would provide for a single
statewide sales or use tax rate (which rate may be
zero), and would establish a method of distributing to
political subdivisions within each State their propor-
tionate share of such taxes, including an examination
of collection of sales or use tax by small volume re-
mote sellers only in the State of origin;
‘‘(7) examining ways to simplify the interstate
administration of sales and use tax on remote com-
merce, including a review of the need for a single or
uniform tax registration, single or uniform tax re-
turns, simplified remittance requirements, and sim-
plified administrative procedures;
‘‘(8) examining the need for an independent
third party collection system that would utilize the
Internet to further simplify sales and use tax admin-
istration and collection;
‘‘(9) reviewing the efforts of States to collect sales
and use taxes owed on purchases from remote sellers,
as well as review the appropriateness of increased ac-
tivities by States to collect sales and use taxes directly
from customers of remote sellers;
‘‘(10) examining the level of contacts sufficient to
permit a State to impose a sales or use tax on remote
commerce that would subject a remote seller to collec-
tion obligations imposed by the State, including—
‘‘(A) the definition of a level of contacts
below which a State may not impose collection
obligations on a remote seller;
‘‘(B) whether or not such obligations are
applied in a nondiscriminatory manner with re-
spect to nonremote transactions; and
‘‘(C) the impact of such obligation on small
business remote sellers;
‘‘(11) examining making permanent the tem-
porary moratorium described in section 151 with re-
spect to Internet access as well as such other taxes
that the Commission deems appropriate;
‘‘(12) examining ways to simplify State and
local taxes imposed on the provision of telecommuni-
cations services;
‘‘(13) requiring the Commission to hold a public
hearing to provide an opportunity for representatives
of the general public, taxpayer groups, consumer
groups, State and local government officials, and tax-
supported institutions to testify; and
‘‘(14) examining other issues that the Commis-
sion determines to be relevant.
‘‘(h) FEDERAL ADVISORY COMMITTEE ACT.—The Fed-
eral Advisory Committee Act shall not apply with respect
to the Commission.
‘‘§ 153. Legislative recommendations
‘‘(a) TRANSMISSION OF PROPOSED LEGISLATION.—
Not later than 2 years after the date of the enactment of
this chapter, the Commission shall transmit to the President
and the Congress proposed legislation reflecting any find-
ings concerning the matters described in such section.
‘‘(b) CONTENTS
OF PROPOSED LEGISLATION.—The
proposed legislation submitted under subsection (a) by the
Commission shall have been agreed to by at least 19 mem-
bers of the Commission and may—
‘‘(1) define with particularity the level of con-
tacts between a State and remote seller that the Com-
mission considers sufficient to permit a State to im-
pose collection obligations on the remote seller and the
level of contacts which is not sufficient to impose col-
lection obligations on remote sellers;
‘‘(2) provide that if, and only if, a State has
adopted a single sales and use tax rate for remote
commerce and established a method of distributing to
its political subdivisions their proportionate share of
such taxes, and adopted simplified procedures for the
administration of its sales and use taxes, including
uniform registration, tax returns, remittance require-
ments, and filing procedures, then such State should
be authorized to impose on remote sellers a duty to
collect sales or use tax on remote commerce;
‘‘(3) provide that, effective upon the expiration of
a 4-year period beginning on the date of the enact-
ment of such legislation, a State that does not have
in effect a single sales and use tax rate and simplified
administrative procedures shall be deemed to have in
effect a sales and use tax rate on remote commerce
equal to zero, until such time as such State does
adopt a single sales and use tax rate and simplified
administrative procedures;
‘‘(4) include uniform definitions of categories of
property, goods, services, or information subject to, or
exempt from, sales and use taxes;
‘‘(5) make permanent the temporary moratorium
described in section 151 with respect to Internet ac-
cess, as well as such other taxes (including those de-
scribed in section 151) that the Commission deems
appropriate;
‘‘(6) provide a mechanism for the resolution of
disputes between States regarding matters involving
multiple taxation; and
‘‘(7) include other provisions that the Commis-
sion deems necessary.
‘‘(c) RECOMMENDATIONS OF THE PRESIDENT.—Not
later than 45 days after the receipt of the Commission’s leg-
islative proposals, the President shall review such proposals
and submit to the Congress such policy recommendations
as the President deems necessary or expedient.
‘‘§ 154. Expedited consideration of legislative rec-
ommendations
‘‘(a) Not later than 90 legislative days after the trans-
mission to the Congress by the Commission of the proposed
legislation described in section 153, such legislation shall
be considered by the respective committees of jurisdiction
within the House of Representatives and the Senate, and,
if reported, shall be referred to the proper calendar on the
floor of each House for final action.
‘‘(b) For purposes of this section, the 90-day period
shall be computed by excluding—
‘‘(1) the days on which either House is not in
session because of an adjournment of more than 3
days to a day certain or an adjournment of the Con-
gress sine die; and
‘‘(2) any Saturday and Sunday, not excluded
under paragraph (1), when either House is not in ses-
sion.
‘‘§ 155. Definitions
‘‘For the purposes of this chapter:
‘‘(1) BIT TAX.—The term ‘bit tax’ means any tax
on electronic commerce expressly imposed on or meas-
ured by the volume of digital information transmitted
electronically, or the volume of digital information
per unit of time transmitted electronically, but does
not include taxes imposed on the provision of tele-
communications services.
‘‘(2) COMPUTER SERVER.—The term ‘computer
server’ means a computer that functions as a central-
ized provider of information and services to multiple
recipients.
‘‘(3) DISCRIMINATORY TAX.—The term ‘discrimi-
natory tax’ means—
‘‘(A) any tax imposed by a State or politi-
cal subdivision thereof on electronic commerce
that—
‘‘(i) is not generally imposed and le-
gally collectible by such State or such politi-
cal subdivision on transactions involving
similar property, goods, services, or infor-
mation accomplished through other means;
‘‘(ii) is not generally imposed and le-
gally collectible at the same rate by such
State or such political subdivision on trans-
actions involving similar property, goods,
services, 
or 
information 
accomplished
through other means, unless the rate is
lower as part of a phase-out of the tax over
not more than a 5-year period;
‘‘(iii) imposes an obligation to collect
or pay the tax on a different person or en-
tity than in the case of transactions involv-
ing similar property, goods, services, or in-
formation 
accomplished 
through 
other
means; or
‘‘(iv) establishes a classification of
Internet access provider for purposes of es-
tablishing a higher tax rate to be imposed
on such providers than the tax rate gen-
erally applied to providers of similar infor-
mation services delivered through other
means; or
‘‘(B) any tax imposed by a State or politi-
cal subdivision thereof, if—
‘‘(i) the mere use of a computer server
by a remote seller to create or maintain a
site on the Internet is considered a factor in
determining a remote seller’s tax collection
obligation; or
‘‘(ii) the display of a remote seller’s in-
formation or content on the computer server
of a provider of Internet access, or the proc-
essing of orders through the computer server
of a provider of Internet access, is consid-
ered a factor in determining whether the
provider of Internet access is deemed to be
the agent of the remote seller for tax collec-
tion purposes.
‘‘(4) ELECTRONIC COMMERCE.—The term ‘elec-
tronic commerce’ means any transaction conducted
over the Internet or through Internet access, compris-
ing the sale, lease, license, offer, or delivery of prop-
erty, goods, services, or information, whether or not
for consideration, and includes the provision of Inter-
net access.
‘‘(5) INFORMATION SERVICES.—The term ‘infor-
mation services’ has the meaning given such term in
section 3(20) of the Communications Act of 1934 as
amended from time to time.
‘‘(6) INTERNET.—The term ‘Internet’ means the
combination of computer facilities and electro-
magnetic transmission media, and related equipment
and software, comprising the interconnected world-
wide network of computer networks that employ the
Transmission Control Protocol/Internet Protocol, or
any predecessor or successor protocol, to transmit in-
formation.
‘‘(7) INTERNET ACCESS.—The term ‘Internet ac-
cess’ means a service that enables users to access con-
tent, information, electronic mail, or other services of-
fered over the Internet, and may also include access
to proprietary content, information, and other serv-
ices as part of a package of services offered to consum-
ers. Such term does not include telecommunications
services.
‘‘(8) MULTIPLE TAX.—The term ‘multiple tax’
means—
‘‘(A) any tax that is imposed by one State
or political subdivision thereof on the same or es-
sentially the same electronic commerce that is
also subject to another tax imposed by another
State or political subdivision thereof (whether or
not at the same rate or on the same basis), with-
out a credit (for example, a resale exemption cer-
tificate) for taxes paid in other jurisdictions
(The term ‘multiple tax’ shall not include a sales
or use tax imposed by a State and 1 or more po-
litical subdivisions thereof pursuant to a law re-
ferred to in section 151(b)(1) on the same elec-
tronic commerce or a tax on persons engaged in
electronic commerce which also may have been
subject to a sales or use tax thereon. For pur-
poses of this subparagraph, the term ‘sales or use
tax’ means a tax that is imposed on or incident
to the sale, purchase, storage, consumption, dis-
tribution, or other use of tangible personal prop-
erty or services as may be defined by laws im-
posing such tax and which is measured by the
amount of the sales price or other charge for such
property or service); or
‘‘(B) any tax on Internet access if the State
or political subdivision thereof classifies such
Internet access as telecommunications or commu-
nications services under State law and such
State or political subdivision thereof has also im-
posed a tax on the purchase or use of the under-
lying telecommunications services that are used
to provide such Internet access without allowing
a credit for other taxes paid, a sale for resale ex-
emption, or other mechanism for eliminating du-
plicate taxation.
‘‘(9) REMOTE
COMMERCE.—The term ‘remote
commerce’ means the sale, lease, license, offer, or de-
livery of property, goods, services, or information by
a seller in 1 State to a purchaser in another State.
‘‘(10) REMOTE SELLER.—The term ‘remote sell-
er’ means a person who sells, leases, licenses, offers, or
delivers property, goods, services, or information from
one State to a purchaser in another State.
‘‘(11) STATE.—The term ‘State’ means any of
the several States, the District of Columbia, or any
territory or possession of the United States.
‘‘(12) TAX.—The term ‘tax’ means any obliga-
tion to pay or to collect and remit any levy, fee, or
charge imposed by any governmental entity solely for
the purpose of generating revenues for governmental
purposes and not—
‘‘(A) in return for a specific privilege, serv-
ice, or benefit conferred on a person or entity;
‘‘(B) to support public regulatory commis-
sions; or
‘‘(C) to support special purpose tele-
communications service programs.
Such term does not include any franchise fees or
similar fees imposed by a State or local franchising
authority, referred to in section 622 or 653 of the
Communications Act of 1934, as amended from time
to time.
‘‘(13) TELECOMMUNICATIONS
SERVICES.—The
term ‘telecommunications services’ has the meaning
given such term in section 3(46) of the Communica-
tions Act of 1934, as amended from time to time.’’.
(b) CONFORMING AMENDMENT.—Title 4 of the United
States Code is amended in the table of chapters by adding
at the end the following:
‘‘6. Moratorium on Certain Taxes ....................................................
151’’.
SEC. 3. NO EXPANSION OF TAX AUTHORITY.
Nothing in this Act shall be construed to expand the
duty of any person to collect or pay taxes beyond that which
existed immediately before the date of the enactment of this
Act.