I
105TH CONGRESS
2D SESSION
H. R. 3529
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
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’’.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) As a massive global network spanning not
only State but international borders, the Internet
and the related provision of online services and
Internet access are matters involving interstate and
foreign commerce within the jurisdiction of the
United States Congress under Article I, section 8,
clause 3 of the United States Constitution.
(2) Even within the United States, the Internet
does not respect State lines and operates independ-
ently of State boundaries. Addresses on the Internet
are designed to be geographically indifferent. Inter-
net transmissions are insensitive to physical distance
and can have multiple geographical addresses.
(3) Because transmissions over the Internet are
made using computer protocols, in particular the
Transmission Control Protocol/Internet Protocol,
that utilize packet switching technology, it is impos-
sible to determine in advance the precise geographic
route over which individual Internet transmissions
will travel; and it is therefore infeasible to separate
domestic intrastate Internet transmissions from
interstate and foreign Internet transmissions.
(4) Consumers, businesses, and others engaging
in interstate and foreign commerce through online
services and the Internet could become subject to
new taxes imposed by thousands of separate taxing
jurisdictions in the United States alone.
(5) Inconsistent and inadministerable taxes im-
posed on the Internet, Internet access, and online
services by Federal, State, and local governments
would subject consumers, businesses, and other
users engaged in interstate and foreign commerce to
multiple, confusing, and burdensome taxation, and
restrict the growth and continued technological mat-
uration of the Internet itself.
(6) The Federal Government does not pres-
ently, and as a matter of national policy should not
in the future, tax the Internet, Internet access, on-
line services, or electronic commerce.
(7) The twenty-first century marketplace re-
quires a twenty-first century sales tax system that is
more uniform, consistent, and streamlined. Not only
will tax simplification make businesses more com-
petitive, but it will make government more efficient,
resulting in personal benefits to every consumer and
citizen.
(8) Because the tax laws and regulations of so
many jurisdictions were established long before the
advent of the Internet, their application to this new
medium in unintended and unpredictable ways could
prove to be an unacceptable burden on the interstate
and foreign commerce of the Nation.
(9) The electronic marketplace of services,
products, and ideas available through the Internet
can be especially beneficial to senior citizens, the
physically challenged, citizens in rural areas, and
small businesses. It also offers a variety of uses and
benefits for educational institutions and charitable
organizations.
(10) A consistent and coherent national policy
regarding taxation of electronic commerce conducted
over the Internet, and the concomitant uniformity,
simplicity, and fairness that is needed to avoid bur-
dening this evolving form of interstate and foreign
commerce, can best be achieved by the United States
exercising its authority under Article I, section 8,
clause 3 of the United States Constitution to encour-
age a cooperative solution among Federal, State,
and local levels of government.
SEC. 3. MORATORIUM ON CERTAIN TAXES.
(a) EXTENT AND DURATION OF MORATORIUM.—For
a period of three years following the enactment of this Act,
neither any State nor any political subdivision thereof
shall impose, assess, collect, or attempt to collect any of
the following specified taxes:
(1) Taxes on Internet access.
(2) Taxes on online services.
(3) Bit taxes.
(4) Bandwidth taxes.
(5) Multiple taxes on electronic commerce.
(6) Discriminatory taxes on electronic com-
merce.
(b) EXCEPTION.—The prohibition in subsection (a)
shall not apply to taxes expressly imposed on Internet ac-
cess or online services by State statute enacted prior to
March 1, 1998: Provided, That the rate of such tax may
not be increased beyond the rate imposed on March 1,
1998.
SEC. 4. CONSULTATIVE GROUP ON THE INTERNATIONAL
TAXATION OF ELECTRONIC COMMERCE.
(a) CONSULTATIVE GROUP.—The Secretaries of the
Treasury, State, and Commerce, in consultation with ap-
propriate committees of the Congress, States and political
subdivisions thereof, consumer and business groups, and
other appropriate groups, shall undertake an examination
of the international taxation of—
(1) domestic and international communications
and transactions using the Internet;
(2) goods and services imported to and exported
from the United States using the Internet;
(3) goods and services imported to and exported
from the United States by means in competition
with the Internet, including mail order sales;
(4) Internet access; and
(5) the telecommunications infrastructure used
by the Internet, online services, and Internet access.
(b) PRESIDENT.—Not later than 2 years from the
date of enactment of this Act, the President shall, to the
extent and in the form the President deems appropriate,
transmit to the appropriate committees of Congress policy
recommendations on the international taxation of commu-
nications and transactions using the Internet.
SEC. 5. COMMISSION ON ELECTRONIC COMMERCE.
(a) ESTABLISHMENT OF COMMISSION.—There is es-
tablished a temporary commission to be known as the
Commission on Electronic Commerce, hereinafter referred
to as the ‘‘Commission’’. The Commission shall—
(1) be composed of 29 members, including the
Chairman, in accordance with subsection (b); and
(2) conduct its business in accordance with the
provisions of this Act.
(b) MEMBERSHIP.—
(1) IN
GENERAL.—The Commissioners shall
serve for the life of the Commission. The member-
ship of the Commission shall be as follows:
(A) The Secretary of the Treasury and the
Secretary of Commerce.
(B) Two representatives each from the Na-
tional Governors’ Association, the National
Conference of State Legislatures, the Council of
State Governments, the National Association of
Counties, the National League of Cities, the
United States Conference of Mayors, and the
International City/County Managers Associa-
tion.
(C) Twelve representatives of consumers
and business, of which two each shall be ap-
pointed by the President, the Senate majority
leader, the Senate minority leader, the Speaker
of the House, the House majority leader, and
the House minority leader.
(2) CHAIRPERSON.—The Chairperson of the
Commission shall be appointed upon the joint rec-
ommendation of the Senate majority leader, the Sen-
ate minority leader, the Speaker of the House, the
House majority leader, and the House minority lead-
er, based on nominations from the National Gov-
ernors’ Association.
(3) 
APPOINTMENTS.—Appointments 
to 
the
Commission shall be made within 45 days of enact-
ment of this Act.
(c) SUNSET.—The existence of the Commission shall
terminate upon transmittal of its recommendations to
Congress.
(d) QUORUM.—Fifteen members of the Commission
shall constitute a quorum for conducting the business of
the Commission.
(e) DUTIES OF THE COMMISSION.—The Commission
shall, in consultation with the National Tax Association
Communications and Electronic Commerce Tax Project
and other appropriate groups, undertake an examination
of—
(1) a uniform system of definitions of remote
commerce subject to sales and use tax within each
State;
(2) a simplified system for sales and use taxes
that provides for a single statewide sales or use tax
rate on all remote commerce, which rate may be
zero, and establishes a method of distributing to po-
litical subdivisions within each State their propor-
tionate share of such taxes;
(3) significant simplifications in the interstate
administration of the sales and use tax, including
uniform tax registration, tax returns, remittance re-
quirements, and filing procedures;
(4) an independent third party collection system
that would utilize the technology of the Internet to
further simplify sales and use tax administration
and collection; and
(5) the level of contacts between a State impos-
ing sales or use tax on remote commerce that should
be considered sufficient to subject the remote seller
to collection obligations imposed by the State, in-
cluding the definition of a level of contacts below
which a State may not impose on a remote seller the
obligation to collect sales or use tax.
SEC. 6. LEGISLATIVE RECOMMENDATIONS.
(a) TRANSMISSION OF PROPOSED LEGISLATION TO
THE PRESIDENT.—Within 2 years from the date of enact-
ment of this Act, the Commission described in section 5
shall transmit to the President proposed legislation reflect-
ing its recommendations concerning the matters described
in section 7.
(b) CONTENTS OF PROPOSED LEGISLATION.—The
proposed legislation submitted by the Commission shall—
(1) define with particularity the level of con-
tacts between a State imposing sales or use tax on
remote commerce that will be considered sufficient
to subject the remote seller to collection obligations
imposed by the State;
(2) provide that if, and only if, a State has
adopted a single sales and use tax rate for remote
commerce, and adopted simplified procedures for the
administration of its sales and use taxes, including
uniform registration, tax returns, remittance re-
quirements, and filing procedures, then such State
shall 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 4 years from the date of enactment of the legisla-
tion described in this section a State which elects
not to adopt a single sales and use tax rate and sim-
plified administrative procedures shall be deemed to
have adopted a sales and use tax rate on remote
commerce equal to zero;
(4) include uniform definitions of remote com-
merce subject to sales and use taxes;
(5) make permanent the temporary moratorium
described in section 3 on Internet access taxes, bit
taxes, and bandwidth taxes, and permanently ban
such other taxes on electronic commerce as the Com-
mission deems appropriate; and
(6) be consistent with the statement of policy
set forth in paragraphs (1) and (2) of section 230(b)
of the Communications Act of 1934, as amended.
(c) TRANSMISSION OF PROPOSED LEGISLATION TO
THE CONGRESS.—Within 45 days after the transmission
to the President of the legislation proposed by the Com-
mission, the President shall transmit to the Congress a
report containing the President’s approval or disapproval
of the legislative recommendations, and his reasons there-
for. Upon the expiration of 45 days after the transmission
to the President of the proposed legislation submitted by
the Commission, the Commission shall transmit such pro-
posed legislation to the Congress.
SEC. 7. EXPEDITED CONSIDERATION OF LEGISLATIVE REC-
OMMENDATIONS.
Within 90 legislative days after the transmission to
the Congress of the proposed legislation described in sec-
tion 6(c), such legislation shall be discharged from the re-
spective committees of jurisdiction within the House of
Representatives and the Senate, and shall be referred to
the proper calendar on the floor of each House for final
action.
SEC. 8. DECLARATION THAT THE INTERNET SHOULD BE
FREE OF FOREIGN TARIFFS, TRADE BAR-
RIERS, AND OTHER RESTRICTIONS.
It is the sense of the Congress that the President
should seek bilateral and multilateral agreements through
the World Trade Organization, the Organization for Eco-
nomic Cooperation and Development, the Asia Pacific
Economic Cooperation Council, and other appropriate
international fora to establish that commercial trans-
actions using the Internet are free from tariff and tax-
ation.
SEC. 9. DEFINITIONS.
For the purposes of this Act:
(1) INTERNET.—The term ‘‘Internet’’ shall
have the meaning set forth in section 230(e)(1) of
the Communications Act of 1934, as amended.
(2) INTERNET
ACCESS.—The term ‘‘Internet
access’’ means the offering or provision of the stor-
age, computer processing, and delivery of informa-
tion that enables the user to make use of resources
found via the Internet.
(3) ONLINE SERVICE.—The term ‘‘online serv-
ice’’ means the offering or provision of information,
information processing, and products or services to
a user as part of a package of services that are com-
bined with Internet access and offered to the user
for a single price.
(4) ELECTRONIC COMMERCE.—The term ‘‘elec-
tronic commerce’’ means any transaction comprising
the sale, offer, or delivery of goods or services (in-
cluding Internet access and online services) via the
Internet.
(5) REMOTE
COMMERCE.—The term ‘‘remote
commerce’’ means the sale and delivery of goods or
services by a person in one State to a purchaser in
another State.
(6) REMOTE SELLER.—The term ‘‘remote sell-
er’’ means a person who sells goods or services from
one State to a purchaser in another State.
(7) TAX.—The term ‘‘tax’’ means—
(A) any levy, fee, or charge imposed under
governmental authority by any governmental
entity; and
(B) the imposition on the seller of an obli-
gation to collect and remit to a governmental
entity any such levy, fee, or charge imposed on
the buyer by a governmental entity.
(8) BIT TAX.—The term ‘‘bit tax’’ means any
transactional tax imposed on or measured by the
amount of digital information transmitted electroni-
cally, or any transactional tax imposed on or meas-
ured according to any of the technological or operat-
ing characteristics of the Internet.
(9) BANDWIDTH TAX.—The term ‘‘bandwidth
tax’’ means any transactional tax imposed on or
measured by the physical capacity of an available
signal to transmit digital information electronically.
(10) MULTIPLE TAX.—The term ‘‘multiple tax’’
means any tax that is imposed by one State or polit-
ical subdivision thereof on the same or essentially
the same electronic commerce that is also taxed by
any other State or political subdivision thereof
whether or not at the same rate or on the same
basis, and includes any tax that does not ensure that
the cost incurred in using telecommunications serv-
ices to offer, sell, or provide electronic commerce is
not subject to taxation under the same tax at a dif-
ferent stage of the process of offering, selling, or
providing such electronic commerce.
(11) DISCRIMINATORY
TAX.—The term ‘‘dis-
criminatory tax’’ means any tax imposed by a State
or political subdivision thereof on electronic com-
merce that is not generally imposed and legally col-
lectible at the same rate by that State or political
subdivision thereof on similar goods or services not
using the Internet, online services, or Internet ac-
cess, and includes—
(A) any tax on electronic commerce that
imposes an obligation to collect or pay the tax
on a different person or entity than in the case
of similar goods or services not using the Inter-
net, online services, or Internet access;
(B) any tax imposed or levied by a State
or political subdivision thereof, where—
(i) the use of a computer server on
the Internet to create or maintain a World
Wide Web page or site by a remote seller
is considered as a factor in determining
whether the remote seller has a substantial
nexus; or
(ii) an Internet access provider, online
service provider, or World Wide Web
hosting service provider is deemed to be
the agent or representative of a remote
seller as a result of the provider maintain-
ing or taking orders via a web page or site
on a computer that is physically located
within a taxing jurisdiction;
Provided, That this definition does not include
a tax imposed or levied by a State where a re-
mote seller’s interest in physical property such
as computer hardware (but not including data)
is considered as a factor in determining whether
a remote seller has a substantial nexus;
(C) any tax purportedly levied by any
State or political subdivision thereof on elec-
tronic mail services, Internet site selection, elec-
tronic newsgroups and bulletin boards, Internet
relay chat, Internet search services, and other
online services that are either not taxed by such
jurisdiction when provided via means other than
the Internet or online services, or that by their
nature are so related to the Internet or online
services that substantially the same service is
not offered via means other than the Internet
or online services within such State or political
subdivision; and
(D) any tax that establishes a classification
for providers or sellers of electronic commerce
or online services for purposes of applying a tax
rate higher than the tax rate generally applied