[Senate Report 106-326]
[From the U.S. Government Publishing Office]
Calendar No. 660
106th Congress Report
SENATE
2d Session 106-326
_______________________________________________________________________
MOBILE TELECOMMUNICATIONS SOURCING ACT
__________
R E P O R T
OF THE
COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
on
S. 1755
June 30, 2000.--Ordered to be printed
__________
U.S. GOVERNMENT PRINTING OFFICE
79-010 WASHINGTON : 2000
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
one hundred sixth congress
second session
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington JOHN D. ROCKEFELLER IV, West
TRENT LOTT, Mississippi Virginia
KAY BAILEY HUTCHISON, Texas JOHN F. KERRY, Massachusetts
OLYMPIA SNOWE, Maine JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan RON WYDEN, Oregon
SAM BROWNBACK, Kansas MAX CLELAND, Georgia
Mark Buse, Staff Director
Ann H. Choiniere, General Counsel
Kevin D. Kayes, Democratic Staff Director
Moses Boyd, Democratic Chief Counsel
Gregg Elias, Democratic General Counsel
(ii)
Calendar No. 660
106th Congress Report
SENATE
2d Session 106-326
======================================================================
MOBILE TELECOMMUNICATIONS SOURCING ACT
_______
June 30, 2000.--Ordered to be printed
_______
Mr. McCain, from the Committee on Commerce, Science, and
Transportation, submitted the following
R E P O R T
[To accompany S. 1755]
The Committee on Commerce, Science, and Transportation, to
which was referred the bill (S. 1755) to amend the
Communications Act of 1934 to regulate interstate commerce in
the use of mobile telephones, having considered the same,
reports favorably thereon with an amendment (in the nature of a
substitute) and recommends that the bill (as amended) do pass.
Purpose of the Bill
The purpose of the bill is to amend the Communications Act of
1934 to provide for a uniform national rule for determining the
location from which mobile telecommunications services are
provided in order to properly apply state and local taxes,
charges, and fees.
Background and Needs
Many states and localities impose transactional taxes, such
as sales and use taxes, on the provision of mobile
telecommunications services. A transactional tax for these
purposes is a tax that is measured by the amounts charged to
the customer for the service. Such taxes necessarily require a
determination of where the services are used, so that the
correct state and local tax rates and rules can be applied.
There are two primary reasons that a uniform rule for
determining the situs of mobile telecommunications is needed.
First, the mobile nature of these services vastly complicates
the task of determining the location of a particular
transaction for tax purposes. Unlike fixed-location
telecommunications services, there is no single address at
which the customer's mobile telecommunications equipment is
located. Moreover, a customer may travel through multiple
taxing jurisdictions in the course of a single telephone call.
Consequently, a variety of different methodologies are used by
the industry and by taxing jurisdictions to determine the situs
of the transaction for tax purposes, such as originating cell
site, billing address, originating switch location and others.
The use of different methodologies results in inconsistent
application of state and local taxes and, in many cases, more
than one taxing jurisdiction claiming the right to tax the same
transaction.
The other reason that a uniform sourcing method is needed
stems from the current trend in the way consumers purchase
mobile telecommunications services. Until recently, most calls
placed or received by a mobile customer while outside of the
home service provider's local calling area were billed to the
customer at a certain rate per minute depending on where the
call was placed or received. Now, however, a large and
increasing number of customers are subscribing to mobile
service pricing plans that allow the customer to place or
receive calls anywhere for a set price per month. The set price
applies to all calls up to a certain number of minutes of use,
with each additional minute being billed at a per-minute rate.
These plans are often referred to as bucket of minutes or
bundled billing plans.
The new bucket of minutes billing plans substantially
increase the difficulty, complexity and expense of correctly
applying state and local taxes to mobile telecommunications
services under the methodologies in use today. Since the
service is billed at a set price per month, unless the customer
uses exactly the number of minutes specified in the plan each
month (which is highly unlikely), it is virtually impossible to
determine the portion of that price charged for individual
calls, each of which may be subject to tax by a different
jurisdiction. Consequently, absent some allocation of the total
monthly charge over the number of minutes actually used during
the month, it is impossible to determine the amount of revenues
to which each of the various state and local transaction taxes
should be applied. In order to accommodate these bucket of
minutes plans, carriers must implement costly enhancements to
their billing systems. Even after implementing such
enhancements, however, there is no guarantee that any of the
various state and local taxing jurisdictions will accept the
resulting allocations, and carriers will continue to face
significant audit exposure.
Another shortcoming of the current system for taxing mobile
telecommunications is the difficulty and inaccuracy inherent in
determining the proper taxing jurisdiction in which a certain
address is located. Once the situs of the call for tax purposes
is known, it is still necessary to determine the correct
jurisdiction or jurisdictions in which that address is located.
This determination is particularly difficult with respect to
local taxes for a number of reasons. First, local
jurisdictional boundaries frequently change as the result of
annexations and incorporations of developments into
municipalities with taxing authority. In addition,
jurisdictional boundaries do not completely correspond to U.S.
five-digit postal zip codes.
The current system of taxing mobile telecommunications is
costly for companies to administer, costly for state and local
governments to monitor, and confusing for consumers to
understand. For more than three years, representatives of the
mobile telecommunications industry and state and local
government organizations engaged in negotiations to develop
compromise legislative language for a national framework for
the taxation of mobile telecommunications services. The
agreement crafted by these parties represented a practical
solution to many of the problems inherent in the current system
of taxing mobile communications services.
Legislative History
S. 1755, the Mobile Telecommunications Sourcing Act of 1999,
was introduced by Senator Brownback and Senator Dorgan on
October 20, 1999, and referred to the Committee on Commerce,
Science, and Transportation. A full Committee hearing was held
on the bill on March 7, 2000. By a unanimous vote on April 13,
2000, the Committee ordered S. 1755 reported to the Senate with
an amendment in the nature of a substitute.
Summary of Major Provisions
This bill establishes one methodology for determining the
location of a mobile telecommunications service for the
purposes of assigning which state and local taxing authorities
may appropriately impose a tax, charge, or fee (tax) on the
mobile telecommunications service. The bill determines the
location of mobile telecommunications services for certain
state and local tax purposes but does not itself impose any
tax. The bill specifies which states and localities may apply
their taxes to wireless telecommunications services, based on
the location of the customer's place of primary use. The bill
permits transactional taxes to be imposed only by the taxing
jurisdiction(s) whose territorial limits encompass the
customer's place of primary use. The bill prohibits any other
state or local jurisdiction from imposing transaction taxes on
that customer's mobile service.
For purposes of applying state and local transaction taxes,
the bill eliminates the need to determine the precise location
of each mobile telecommunications transmission, or call. In
place of locating each call, the bill provides that all of a
customer's mobile telecommunications services are deemed to be
provided by the customer's home service provider and authorizes
only the taxing jurisdictions whose territorial limits
encompass the customer's place of primary use to impose
transaction taxes on the charges for such services. Place of
primary use is defined in the bill to mean either the street
address of the customer's residence or primary business
location, which is within the licensed service area of the home
service provider. By limiting a customer's place of primary use
to one of these two locations, the bill minimizes the
opportunity for tax planning that could occur through the
selection of a tax situs solely for its tax climate. Home
service provider is defined in the bill to mean the facilities-
based carrier or reseller with which the customer contracts for
mobile telecommunications services.
A home service provider is responsible for obtaining from the
customer and maintaining updated records on the customer's
place of primary use. If the home service provider' relies in
good faith on the residential or business street address
supplied to it by the customer, the home service provider is
not liable for any additionaltaxes based on a different
determination of the place of primary use. With respect to customers
having a service agreement in effect on the effective date of the bill,
the home service provider may treat the existing address used for tax
purposes as the place of primary use for the remaining term of the
service agreement, excluding any extensions or renewals. A taxing
jurisdiction, or the state on behalf of a taxing jurisdiction, however,
may determine that an address used as the customer's place of primary
use is not representative of the customer's residence or primary
business location, and propose to change the customer's place of
primary use, on a prospective basis. A proposed change of this nature
will not become effective until (1) all affected taxing jurisdictions
within the state consent to the change and (2) the customer is given
the opportunity to demonstrate that the address given by the customer
is the correct place of primary use.
The bill provides that a state or a designated data base
provider may make available to mobile service providers an
electronic database that designates for each street address in
the state the applicable taxing jurisdiction(s). A designated
database provider may be a corporation, association, or other
entity that represents all of the political subdivisions of a
state and is sanctioned by the municipal and county
associations or leagues of that state, which is responsible for
providing the electronic database if the database is not
provided by the state.
The bill requires that the database be provided in a format
approved by the American National Standards Institute's
Accredited Standards Committee X12 and that it provide an
appropriate code identifying each taxing jurisdiction and level
of taxing jurisdiction located within a state. In recognition
of the fact that many service providers have operations in
multiple states, the bill also directs that the numeric codes
utilized in the databases contain the same number of numeric
digits, and that each digit or combination of digits refer to
the same level of taxing jurisdiction throughout the United
States. For example, the first two digits might refer to the
state, while the next three might refer to the counties within
that state, and so on, until all levels of jurisdiction are
accommodated. To assist in the development of consistent
coding, the bill requires that the database use a format
similar to FIPS 55-3, or some other appropriate format approved
by the Federation of Tax Administrators and the Multistate Tax
Commission.
The bill provides that the state or the designated database
provider must furnish notice of the availability of the
database, as well as any subsequent revisions thereof, by
publication in the manner normally employed for publication of
informational tax, charge or fee notices to taxpayers in the
particular state. The home service provider is required by the
bill to reflect changes that have been made to the database
during a calendar quarter no later than 30 days after the end
of such calendar quarter for each state that publishes notice
of the update in the prescribed manner. If the mobile service
provider uses the database and timely reflects changes thereto,
the provider will not be held liable for taxes that were not
paid solely as a result of errors or omissions in the database.
Alternatively, if neither a state nor designated database
provider elects to provide the database described above, the
home service provider may use an enhanced zip code matching
system to determine the applicable taxing jurisdiction(s). An
enhanced zip code is defined as a U.S. Postal zip code of nine
or more digits. If the home service provider uses the enhanced
zip code system and exercises due diligence in assigning the
enhanced zip codes to the appropriate taxing jurisdictions, the
provider will not be liable for additional taxes that might
otherwise be due as the result of an incorrect assignment of a
street address to the correct taxing jurisdiction. The home
service provider is presumed to have exercised due diligence if
the home service provider demonstrates that it has expended
reasonable resources to implement and maintain an appropriately
detailed database of street address assignments to taxing
jurisdictions, implemented and maintained reasonable internal
controls to promptly correct misassignments of street
addresses, and used all reasonably obtainable and useable data
pertaining to changes in jurisdictional boundaries that would
materially impact the accuracy of the database.
A state or local jurisdiction may determine that the
assignment of a taxing jurisdiction by the home service
provider does not reflect the correct taxing jurisdiction. If
such a determination is made, the home service provider may be
required to change the assignment on a prospective basis.
Before any change in assignment is finalized, the consent of
all affected taxing jurisdictions must be obtained, and the
home service provider must be given an opportunity to
demonstrate that the original assignment was correct, in
accordance with applicable administrative procedures.
The Committee recognizes that the sourcing rules contained in
the bill are appropriate only for taxes based on the
transaction between a mobile telecommunications service
provider and its customer, and that such rules are not
appropriate for determining the situs of business receipts,
expenditures or property for purposes of other types of taxes,
such as income, franchise and other business activity taxes.
Accordingly, the bill expressly provides that its sourcing
methodology is applicable only to transaction taxes, i.e.,
taxes, charges or fees levied as a fixed amount per customer or
measured by the amounts charged to customers of mobile
telecommunications services. The bill further provides that it
does not apply to income, capital stock, property and other
taxes not based on the transaction between the home service
provider and the customer.
The bill provides that if the final judgment of a court
substantially limits or impairs the essential elements of the
bill on federal statutory or constitutional grounds, all of the
provisions of the bill shall be null and void and of no effect.
This nonseverability is a critical feature of the bill, because
the provisions of the bill supersede and replace the existing
state tax system with respect to the application of transaction
taxes to mobile telecommunications services. The
nonseverability provision provides a mechanism for
automatically returning to the status quo ante in the event
that the tax system authorized by the bill is overturned by the
courts.
Constitutional Analysis
Under the Commerce Clause of the Constitution, Congress has
the ability ``to regulate Commerce * * * among the several
States.'' U.S. Const. art. I, section 8, cl. 3. In the absence
of federal legislation, the U.S. Supreme Court has interpreted
the Commerce Clause to mean that states may levy a tax on
interstate commerce as long as the tax (1) is applied to an
activity having a substantial nexus with the state, (2) the tax
is fairly apportioned, (3) the tax does not discriminate
against interstate commerce, and (4) the tax is fairly related
to the services provided by the taxing state. Complete Auto
Transit, Inc. v. Brady, 430 U.S. 274 (1977). In Goldberg v.
Sweet, 488 U.S. 252, 263 (1989), the U.S. Supreme Court
explained which states had jurisdiction to apply a
transactional tax to interstate telecommunications.
Jurisdiction rested with the state or states from which the
telecommunications originated or in which the
telecommunications terminated, provided that the state also was
the state of the service address (address of the equipment to
which the telecommunications was charged) or the billing
address.
The place of primary use rule provided in the bill does not
follow the taxing model upheld in Goldberg v. Sweet. The
Committee recognizes, however, that Congress's power under the
Commerce Clause includes the ability to regulate taxation and
that Congress may alter or abolish judicially created rules
regarding the imposition of taxes by states. See Northwestern
Portland Cement Co. v. Minnesota, 358 U.S. 450 (1959); Gwin,
White & Prince, Inc. v. Henneford, 305 U.S. 434 (1939).
The Committee also believes that the taxing model authorized
by the bill satisfies the Due Process Clause of the
Constitution. In the context of transaction taxes subject to
the provisions of the bill, the Due Process Clause essentially
requires only that there be some minimum connection between the
taxing state and the persons and transactions sought to be
taxed. The Committee believes that the customer's intentional
use of the service primarily in a particular state (i.e., the
place of primary use) should be substantially more than the
minimum connection between that state and the customer
necessary to satisfy the Due Process Clause. Similarly, the
home service provider's agreement with the customer, which
reflects the purposeful direction of its economic activity and
maintenance of a market in that state, also creates more than
the minimum connection between the state and the home service
provider necessary to satisfy the Due Process Clause.
Finally, the bill does not require state or local governments
to take any action in furtherance of a federal program in
violation of the Tenth Amendment. The Committee believes that
the provisions of this bill are more appropriately
characterized as an authorization by Congress for the states to
tax wireless communications services in a way that they
otherwise could not absent the bill, rather than a mandate that
the states adopt a particular regulatory scheme. Cf. United
States v. Printz, 521 U.S. 898 (1997); New York v. United
States, 505 U.S. 144 (1992).
The Committee believes that the bill is a constitutionally
sound and practical approach to burdensome and otherwise
insoluble problems of multi-jurisdictional commerce.
Estimated Costs
In accordance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate and section 403 of the
Congressional BudgetAct of 1974, the Committee provides the
following cost estimate, prepared by the Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 9, 2000.
Hon. John McCain,
Chairman, Committee on Commerce, Science, and Transportation,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1755, 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), Hester Grippando (for revenues), and
Shelley Finlayson (for the state and local impact).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
S. 1755--Mobile Telecommunications Sourcing Act
Summary: Two years after enactment, S. 1755 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 S. 1755 could affect
direct spending and receipts, pay-as-you-go procedures would
apply, but CBO estimates that any such effects would be
negligible.
S. 1755 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 a 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
legislation does not contain any new private-sector mandates as
defined by 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,
S. 1755 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 and receipts. As
noted above, S. 1755 could affect direct spending and receipts,
but CBO estimates that any such effects would be negligible.
Estimated impact on state, local, and tribal governments:
S. 1755 would preempt state and local government laws by
prohibiting jurisdictions from taxing mobile telecommunications
services unless the jurisdictions contain a customer's place of
primary use. Such a preemption would be a mandate as defined in
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 determining which
jurisdictions may tax mobile telecommunications services.
Because the current system of taxing mobile
telecommunications services is very complex, it is unclear what
effect 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: This bill contains
no new private-sector mandates as defined by UMRA.
Estimate prepared by: Federal Costs: Mark Hadley; Revenues:
Hester Grippando; Impact on State, Local, and Tribal
Governments: Shelley Finlayson; Impact on the Private Sector:
Jean Wooster.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
Regulatory Impact Statement
In accordance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee provides the
following evaluation of the regulatory impact of the
legislation, as reported:
number of persons covered
The Committee believes that the bill will not subject any
individuals or businesses affected by the bill to any
additional regulation.
economic impact
After full implementation of the bill, individuals,
governmental authorities, and businesses will benefit from
greater simplification of the manner in which mobile
telecommunications services are taxed. Consumers will avoid the
possibility of having a mobile telecommunications service taxed
by competing taxing authorities. The audit and oversight
complexities of the taxation of mobile telecommunications
transactions will be simplified for state and local
governments, reducing their costs. In addition, mobile
telecommunications carriers will avoid the administrative costs
of having to administer the tax laws and regulations in the
dozens of state and local taxing authorities that each
individual mobile telecommunications consumer may be located in
while making or receiving calls during the course of each
monthly billing period, reducing their costs as well. All told,
costs will be reduced for consumers, taxpayers, state and local
governments and the mobile telecommunications industry.
privacy
There will be no impact on personal privacy as a result of
this legislation.
paperwork
The paperwork resulting from this legislation will be
primarily related to the notice and updates to home service
providers regarding electronic databases provided by the
states.
Section-by-Section Analysis
Section 1. Short title
The title of the Act is the ``Mobile Telecommunications
Sourcing Act.''
Section 2. Findings
The findings describe the problem of applying state and local
transactional taxes to mobile telecommunications services and
the competing value of preserving viable state and local
governments in our federal system. The findings also
acknowledge the need for a practical solution in the area of
state and local taxation of mobile telecommunications services.
Section 3. Amendments to the Communications Act of 1934
Section 3 reflects the fact that the legislation is
structured as an amendment to the Communications Act because
the Mobile Telecommunications Sourcing Act is a matter of
interstate telecommunications policy rather than a revenue-
raising or revenue-cutting measure. Section 3 therefore adds
title VIII to the Communications Act.
Section 801(a) provides that the legislation applies to any
tax, charge, or fee imposed by any taxing authority as a fixed
charge for each customer or measured by gross amounts charged
to customers for mobile telecommunications services. The legal
imposition of the tax, charge, or fee does not matter.
Section 801(b) identifies general taxes that are not subject
to the provisions of the title. Taxes excluded from the title
include, among others, income taxes and taxes assessed on an
equitably apportioned amount that is not determined on a
transactional basis.
Section 801(c)(1) provides that the title does not apply to
the determination of the taxing situs of prepaid telephone
calling services.
Section 801(c)(2) provides that the title does not affect the
taxability of either the initial sale or subsequent resale of
mobile services where the Internet Tax Freedom Act would
preclude a taxing jurisdiction from imposing a tax, charge, or
fee on such mobile telecommunications services.
Section 801(c)(3) provides that the title does not apply to
air-ground radiotelephone services as defined in 47 CFR 22.99
as of June 1, 1999.
Section 802 provides that mobile telecommunications services
can only be subjected to a tax, charge, or fee by the taxing
jurisdictions whose territorial limits encompass the customer's
place of primary use, regardless of where the mobile
telecommunications services originate, terminate, or pass
through. The rule only applies to charges for mobile
telecommunications services for which charges are billed by or
for the home service provider with which the customer
contracts. This section authorizes states and localities to
impose taxes based upon the place of primary use and prohibits
them from imposing taxes on mobile telecommunications services
on any other basis.
Section 803 clarifies that the title does not give taxing
jurisdictions any authority that they do not already possess to
impose a tax, charge, or fee. This section also clarifies that
the title does not modify, impair, or supersede any current
authority possessed by state and local taxing jurisdictions
except as expressly provided in this title.
Section 804 establishes a mechanism through which home
service providers can determine the appropriate taxing
authorities for a customer's place of primary use. It allows
the states to provide home service providers with an electronic
database containing such information in a uniform format. The
database would match street addresses (in standard postal
format) within the state to the applicable taxing
jurisdictions. Section 804 also permits a designated database
provider to provide an electronic database if a state does not
provide such a database.
Section 804 also provides that a home service provider that
relies on the information contained in an electronic database
will be held harmless from any tax, charge, or fee that
otherwise would be due solely as a result of an error or
omission in the database.
Section 805 provides that a home service provider would be
held harmless from any tax, charge, or fee that would otherwise
be due if the database described in Section 804 does not exist
in a state and the home service provider uses an enhanced zip
code to determine the taxing jurisdictions associated with a
customer's place of primary use. A home service provider must
exercise due diligence when assigning taxing jurisdictions
using the enhanced zip code method for the provisions of this
section to apply. Additional requirements are set forth in this
section regarding the use of the enhanced zip code method.
Section 806 provides that a taxing jurisdiction under
specified procedures can require a home service provider to
change prospectively the customer's place of primary use or
require the home service provider to change prospectively the
applicable taxing jurisdiction(s) assigned to a customer's
place of primary use.
Section 807(a) establishes that a home service provider has
the principal responsibility for obtaining and maintaining
updated records on a customer's place of primary use. A home
service provider may rely on information provided by the
customer if such reliance is made in good faith. Section 807(a)
also provides that, with respect to taxes customarily itemized
and passed through on the customer's bills, the home service
provider is not generally responsible for taxes subsequently
determined to have been sourced in error.
Section 807(b) provides that in the case of a contract
existing prior to the effective date of the Act a home service
provider may rely on its previous determination of the
applicable taxing jurisdiction(s) for the remainder of the
contract, excluding extensions or renewals of the contract.
Section 808(a) provides that the title does not modify,
impair, or supersede any law that authorizes a state or local
taxing jurisdiction to collect a tax, charge, or fee from a
customer who has failed to provide its place of primary use.
Section 808(b) states that a home service provider must treat
charges that reflect a bundled product, only part of which is
taxable, as fully taxable, unless reasonable identification of
the non-taxable charges is possible from the home service
provider's business records kept in the regular course of
business.
Section 808(c) limits non-taxability of mobile
telecommunications services in a jurisdiction where mobile
telecommunications services are not taxable. A customer must
treat charges as taxable unless the home service provider
separately states the non-taxable charges or provides
verifiable data from its business records kept in the regular
course of business that reasonably identifies the non-taxable
charges.
Section 809 provides definitions specific to the title.
Section 809(1) defines ``charges for mobile
telecommunications services.''
Section 809(2) defines ``taxing jurisdiction.''
Section 809(3) defines ``place of primary use'' as the
customer's business or residential street address in the
licensed service area of the home service provider. Place of
primary use is used to determine the taxing jurisdiction(s)
that may tax the provision of mobile telecommunications
services. If a home service provider has a national or regional
service area, the place of primary use is still limited to the
customer's business or residential street address within that
larger service area.
Section 809(4) defines ``licensed service area.''
Section 809(5) defines ``home service provider.''
Section 809(6) defines ``customer.'' Under a special rule,
customers include employees (the end users) of businesses that
contract for mobile telecommunications services. Customers do
not include (i) resellers or (ii) a serving carrier providing
wireless services for a customer who is outside the customer's
home service provider's licensed service area.
Section 809(7) defines ``designated database provider.''
Section 809(8) defines ``prepaid telephone calling
services.''
Section 809(9) defines ``reseller.'' A reseller does not
include a serving carrier providing mobile telecommunications
services for a customer who is outside the customer's home
service provider's licensed service area.
Section 809(10) defines ``serving carrier.''
Section 809(11) defines ``mobile telecommunications
services'' as commercial mobile radio service as defined in 47
CFR 20.3 as of June 1, 1999.
Section 809(12) defines ``enhanced zip code,'' a term that
refers to zip+4 or a zip code exceeding nine digits.
Section 810 provides that the FCC has no jurisdiction over
the interpretation, implementation, or enforcement of this
title.
Section 811 provides for nonseverability in the event of a
judicial determination that the title is unconstitutional or
otherwise substantially impaired from accomplishing its
objective.
Section 812(a) provides that nothing in the title is intended
to reflect upon the intent of Congress in enacting the Internet
Tax Freedom Act.
Section 812(b) provides that nothing in the title impacts the
implementation of the Telecommunications Act of 1996 or the
amendments made by that Act.
Sec 4. Effective date
Section 4 establishes an effective date of the first day of
the first month beginning more than two years after enactment.
The transitional delay allows both business and tax
administrators to gear up for a change in their existing
systems, including the possible use of the database authorized
by section 804.
Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the Standing
Rules of the Senate, 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 material is printed
in italic, existing law in which no change is proposed is shown
in roman):
COMMUNICATIONS ACT OF 1934
TITLE VIII--STATE AND LOCAL TREATMENT OF CHARGES FOR MOBILE
TELECOMMUNICATIONS SERVICES.
SEC. 801. APPLICATION OF TITLE.
(a) In General.--This title 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 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 title does 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 State-imposed business
and occupation tax--
(A) that is applied to gross receipts or
gross proceeds;
(B) that is the legal liability of the
carrier; and
(C) under which the carrier may elect to use
the sourcing rules under this title; or
(5) any fee related to obligations under section 254
of this Act.''
(c) Specific Exceptions.--This title--
(1) does not apply to the determination of the taxing
situs of prepaid telephone calling services;
(2) does not affect the taxability of either the
initial sale of mobile telecommunications services or
subsequent resale, whether as sales of the service
alone or as a part of a bundled product, where the
Internet Tax Freedom Act would preclude a taxing
jurisdiction from subjecting the charges of the sale of
these mobile telecommunications 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) does not apply to the determination of the taxing
situs of air-ground radiotelephone service as defined
in section 22.99 of the Commission's regulations (47
CFR 22.99).
SEC. 802. SOURCING RULES.
(a) In General.--Notwithstanding the law of any State or
political subdivision thereof to the contrary, mobile
telecommunicationsservices 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) Jurisidiction.--All charges for mobile telecommunications
services that are deemed to be provided by the customer's home
service provider under 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. 803. LIMITATIONS.
This title does not--
(1) provide authority to a taxing jurisdiction to
impose a tax, charge, or fee that the laws of the
jurisdiction do not authorize the 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 this title.
SEC. 804. ELECTRONIC DATABASES FOR NATIONWIDE STANDARD NUMERIC
JURISDICTIONAL CODES.
(a) Electronic 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. The 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. The 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. 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 that State.
(c) User Held Harmless.--A home service provider using the
data contained in the 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 the electronic database provided by a
State or designated database provider. The home service
provider shall reflect changes made to the electronic database
during a calendar quarter no later than 30 days after the end
of that calendar quarter for each State that issues notice of
the availability of an electronic database reflecting such
changes under subsection (b).
SEC. 805. PROCEDURE WHERE NO ELECTRONIC DATABASE PROVIDED.
(a) In General.--If neither a State nor designated database
provider provides an electronic database under section 804, a
home service provider shall be held harmless from any tax,
charge, or fee liability in that 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 806,
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. Where 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 that
enhanced zip code for each level of taxing jurisdiction. Any
enhanced zip code assignment changed in accordance with section
806 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 the
electronic 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 804
until the later of--
(1) 18 months after the nationwide standard numeric
code described in section 804(a) has been approved by
the Federation of Tax Administrators and the Multistate
Tax Commission; or
(2) 6 months after that State or a designated
database provider in that State provides the electronic
database as prescribed in section 804(a).
SEC. 806. 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 809(3) 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) where 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 customer is given an opportunity,
prior to such notice of determination, 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
805 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) where 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. 807. DUTY OF HOME SERVICE PROVIDER REGARDING PLACE OF PRIMARY USE.
(a) Place of Primary Use.--A home service provider is
responsible for obtaining and maintaining the customer's place
of primary use (as defined in section 809). Subject to section
806, and if the home service provider's reliance on information
provided by its customer is in good faith, a home service
provider--
(1) may rely on the applicable residential or
business street address supplied by the home service
provider's customer; and
(2) is not 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 806, a home service provider may 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. 808. SCOPE; SPECIAL RULES.
(a) Title Does Not Supersede Customer's Liability to Taxing
Jurisdiction.--Nothing in this title 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 otherwise non-
taxable 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) Non-taxable Charges.--If a taxing jurisdiction does not
subject charges for mobile telecommunications services to
taxation, a customer may not rely upon the non-taxability of
charges for mobile telecommunications services unless the
customer's home service provider separately states the charges
for non-taxable 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 non-
taxable charges.
(d) References to Regulations.--Any reference in this title
to the Commission's regulations is a reference to those
regulations as they were in effect on June 1, 1999.
SEC. 809. DEFINITIONS.
In 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 the Commission's regulations
(47 CFR 20.3), 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) 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.
(3) 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) either 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.
(4) 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.
(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) 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) where 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.
(7) 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 the electronic
database prescribed in section 804(a) if the
State has not provided such electronic
database; and
(B) sanctioned by municipal and county
associations or leagues of the State whose
responsibility it would otherwise be to provide
the electronic database prescribed by this
title.
(8) 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.
(9) 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; but
(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.
(10) 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.
(11) Mobile telecommunications service.--The term
``mobile telecommunications service'' means commercial
mobile radio service, as defined in section 20.3 of the
Commission's regulations (47 CFR 20.3).
(12) Enhanced zip code.--The term ``enhanced zip
code'' means a United States postal zip code of 9 or
more digits.
SEC. 810. COMMISSION NOT TO HAVE JURISDICTION OF TITLE.
Notwithstanding any other provision of this Act, the
Commission shall have no jurisdiction over the interpretation,
implementation, or enforcement of this title.
SEC. 811. NONSEVERABILITY.
If a court of competent jurisdiction enters a final judgment
on the merits that is no longer subject to appeal, which
substantially limits or impairs the essential elements of this
title based on federal statutory or federal Constitutional
grounds, or which determines that this title violates the
United States Constitution, then the provisions of this title
are null and void and of no effect.
SEC. 812. NO INFERENCE.
(a) Internet Tax Freedom Act.--Nothing in this title may be
construed as bearing on Congressional intent in enacting the
Internet Tax Freedom Act or as affecting that Act in any way.
(b) Telecommunications Act of 1996.--Nothing in this title
shall limit or otherwise affect the implementation of the
Telecommunications Act of 1996 or the amendments made by that
Act.''