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Week Ending October 19, 2007

H.R.3678 To amend the Internet Tax Freedom Act to extend the moratorium on certain taxes relating to the Internet and to electronic commerce.

The bill amends 1998 law that established a moratorium on taxes levied by States and municipalities on Internet activities and electronic commerce. The moratoriums are scheduled to expire on November 1, 2007. The bill would extend them to November 1, 2011.

The 1998 law prohibited State and local taxes on the sale or purchase of telecommunications services, typically Internet access, but taxes levied before October 1, 1998 may continue. Under the bill taxes on the providers of Internet connection providers, the so-called ‘backbone’ of the Internet, would also be prohibited.

CBO reports that at least 8 States are collecting such taxes that will be prohibited under this bill. Those States are Illinois, Pennsylvania, Alabama, Florida, New Hampshire, Missouri, Washington and Minnesota. Some jurisdictions within those states are also collecting Internet taxes and will have to end the practice. CBO can only calculate that the loss to those government entities would probably total more than $80 million yearly.

Sponsor:  Rep. John Conyers, Jr. (D-MI-14^th)

Vote: Passed House 405 to 2 RC 968 October 15, 2007

Cost to the taxpayers: “CBO estimates that enacting H.R. 3678 would have no impact on the federal budget, but it would impose significant annual costs on some state and local governments.”

Earmark Certification:   Not applicable to this bill.

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MORE INFORMATION

1st Session

H. R. 3678

To amend the Internet Tax Freedom Act to extend the moratorium on certain taxes relating to the Internet and to electronic commerce.

IN THE HOUSE OF REPRESENTATIVES

September 27, 2007

Mr. CONYERS (for himself, Ms. LINDA T. SANCHEZ of California, Mr. CANNON, Mr. BOUCHER, Mr. WATT, Mr. ISSA, and Mr. SENSENBRENNER) introduced the following bill; which was referred to the Committee on the Judiciary

A BILL

To amend the Internet Tax Freedom Act to extend the moratorium on certain taxes relating to the Internet and to electronic commerce.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Internet Tax Freedom Act Amendments Act of 2007'.

SEC. 2. MORATORIUM.

The Internet Tax Freedom Act (47 U.S.C. 151 note) is amended--

(1) in section 1101(a) by striking `2007' and inserting `2011', and

(2) in section 1104(a)(2)(A) by striking `2007' and inserting `2011'.

SEC. 3. GRANDFATHERING OF STATES THAT TAX INTERNET ACCESS.

Section 1104 of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended by adding at the end the following:

`(c) Application of Definition-

`(1) IN GENERAL- Effective as of November 1, 2003--

`(A) for purposes of subsection (a), the term `Internet access' shall have the meaning given such term by section 1104(5) of this Act, as enacted on October 21, 1998; and

`(B) for purposes of subsection (b), the term `Internet access' shall have the meaning given such term by section 1104(5) of this Act as amended by section 2(c) of the Internet Tax Nondiscrimination Act (Public Law 108-435).

`(2) EXCEPTIONS- Paragraph (1) shall not apply until November 1, 2007, to a tax on Internet access that is--

`(A) generally imposed and actually enforced on telecommunications service purchased, used, or sold by a provider of Internet access, but only if the appropriate administrative agency of a State or political subdivision thereof issued a public ruling prior to July 1, 2007, that applied such tax to such service in a manner that is inconsistent with paragraph (1); or

`(B) the subject of litigation instituted in a judicial court of competent jurisdiction prior to July 1, 2007, in which a State or political subdivision is seeking to enforce, in a manner that is inconsistent with paragraph (1), such tax on telecommunications service purchased, used, or sold by a provider of Internet access.

`(3) NO INFERENCE- No inference of legislative construction shall be drawn from this subsection or the amendments to section 1105(5) made by the Internet Tax Freedom Act Amendments Act of 2007 for any period prior to November 1, 2007, with respect to any tax subject to the exceptions described in subparagraphs (A) and (B) of paragraph (2).'.

SEC. 4. DEFINITION.

Section 1105 of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended--

(1) in paragraph (1) by striking `services',

(2) by amending paragraph (5) to read as follows:

`(5) INTERNET ACCESS- The term `Internet access'--

`(A) means a service that enables users to connect to the Internet to access content, information, or other services offered over the Internet;

`(B) includes the purchase, use or sale of telecommunications by a provider of a service described in subparagraph (A) to the extent such telecommunications are purchased, used or sold--

`(i) to provide such service; or

`(ii) to otherwise enable users to access content, information or other services offered over the Internet;

`(C) includes services that are incidental to the provision of the service described in subparagraph (A) when furnished to users as part of such service, such as a home page, electronic mail and instant messaging (including voice- and video-capable electronic mail and instant messaging), video clips, and personal electronic storage capacity; and

`(D) does not include voice, audio or video programming, or other products and services (except services described in subparagraph (A), (B), or (C)) that utilize Internet protocol or any successor protocol and for which there is a charge, regardless of whether such charge is separately stated or aggregated with the charge for services described in subparagraph (A), (B), or (C).',

(3) by amending paragraph (9) to read as follows:

`(9) TELECOMMUNICATIONS- The term `telecommunications' means `telecommunications' as such term is defined in section 3(43) of the Communications Act of 1934 (47 U.S.C. 153(43)) and `telecommunications service' as such term is defined in section 3(46) of such Act (47 U.S.C. 153(46)), and includes communications services (as defined in section 4251 of the Internal Revenue Code of 1986 (26 U.S.C. 4251)).', and

(4) in paragraph (10) by adding at the end the following:

`(C) SPECIFIC EXCEPTION- Effective November 1, 2007, the term `tax on Internet access' also does not include a State tax that--

`(i) is imposed on at least 80 percent of business enterprises engaged in business in the State without regard to--

`(I) the form of organization;

`(II) business activity in which such enterprise is engaged;

`(III) minimum filing thresholds;

`(IV) whether such business actually incurs a filing and payment obligation; and

`(ii) was enacted between June 30, 2005, and November 1, 2007, to replace, in whole or in part, a tax that, pursuant to section 1105(10)(B) or a modified value-added tax, is not a tax on Internet access.'.

SEC. 5. CONFORMING AMENDMENTS.

Section 1106 of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended--

(1) in subsection (b)(2)--

(A) in the heading by striking `SERVICES', and

(B) by striking `such services' and inserting `such telecommunications', and

(2) by striking `services' each place it appears.

SEC. 6. EFFECT ON OTHER LAWS.

Section 1107 of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended by adding at the end the following:

`(d) Certain Taxes on Internet Access- No State shall prohibit a provider of Internet access from--

`(1) collecting from customers, directly or indirectly, the amount of any tax described in section 1105(10)(C) that is imposed on Internet access revenues; or

`(2) separately stating the amount of such tax on customer bills.'.

SEC. 7. RULE OF CONSTRUCTION.

Section 1108 of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended by striking section 1108.

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