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Washington, D.C. – U.S. Sen. Mike Enzi,R-Wyo., and a bi-partisan group of senators have introduced a new bill that Enzi says would permanently ban taxes on accessing the Internet and encourage states to develop a streamlined system of sales and use taxes for remote sales.

The bill, S. 1567 which was introduced Oct. 18, differs slightly from a bill, S. 1542, that Enzi introduced Oct. 11. The updated Enzi bill requires Congress to either approve or disapprove an interstate tax compact entered into by at least 20 states. The updated Enzi bill also expands options for states and local taxing districts to negotiate with sellers on taxing compliance.

Enzi said an extension of the moratorium that expired Oct. 21 or passing legislation only concerned with Internet access would be an easy way to put off working on the issue, but the complex problem of how to simplify taxes while helping state and local governments to provide for schools, law enforcement and city streets would still remain.

"We have a choice of either doing what is quick and expedient or doing what is right. Leadership isn't always easy or popular, it's doing what needs to be done," said Enzi. "Many of my colleagues and I have been working on this issue for a long, long time. This is the right time. We're ready to move forward now and I hope others will join us."

Enzi is working with other senators to gain support for the legislation and provide for Senate action, but as of 2 p.m. today, October 25, no definitive schedule has been set.

Cosponsors of Enzi's updated bill include Sens. Byron Dorgan, D-N.D., Bob Graham, D-Fla., Tim Hutchinson, R-Ark., Kay Bailey Hutchison, R-Texas, John Kerry, D-Mass., Craig Thomas, R-Wyo., George Voinovich, R-Ohio, Jesse Helms, R-N.C. and Rick Santorum, R-Penn.

A summary and complete text of S. 1567 follows.

Summary of S. 1567, the "Internet Tax Moratorium and Equity Act"

§ Permanent Ban on Internet Access Taxes. The new proposal by Senator Enzi provides a permanent extension of the moratorium on Internet access taxes, and extends the moratorium on multiple and discriminatory taxes for five years (ending December 31, 2005). The original moratorium expired on October 21, 2001.

§ Simplification of State Sales Taxes. S. 1567 encourages states to develop a streamlined system of sales and use taxes that provides: a centralized multi-state registration system for sellers; uniform definitions for goods and services sold; uniform rules for attributing transactions to particular taxing jurisdictions; uniform procedures for exempt purchases; uniform software certification procedures; uniform tax return and remittance forms; consistent electronic filing and remittance methods; state administration of all state and local sales and use taxes; uniform audit procedures, including a single audit at the sellers' election; reasonable compensation for sellers to cover collection costs; exemption from use tax collection requirements for remote sellers with less than $5 million in gross annual sales; and protections for consumer privacy.

§ Congressional Review of Simplified Systems. Under S. 1567, once 20 states have developed and adopted an Interstate Simplified Sales and Use Tax Compact, the states will submit the Compact to Congress. Once the Compact is submitted, Congress will have 120 days to consider the plan under fast-track procedures. Congress will vote up or down on whether those 20 states have adopted simplified systems that do not create an undue burden on interstate commerce. If Congress approves the Compact, states that are signatories to the Compact will be authorized to compel remote sellers to collect sales and use taxes.

§ Flexibility on Number of Rates Per State. S. 1567 allows Compact states to use either a single, blended use tax rate for all remote sales, or states could require the collection of the actual state and local sales or use tax due on each sale if the states provide sellers with the necessary information to identify the applicable state and local sales or use tax.

§ Collection Costs. S. 1567 recommends that state and local governments and the business community study the cost to all sellers of collecting and remitting state and local sales and use taxes. The results of the study would be used to set the vendor collection allowance.

§ No Effect on Nexus. The proposal provides that changes to sales and use tax collection duties (described above) would have no bearing on whether a seller has nexus for any other state or local tax, including franchise and income taxes.

§ Consideration of Business Activity Taxes. S. 1567 provides that Congress should determine appropriate standards for determining whether nexus exists for State business activity tax purposes before the end of the 107th Congress.

Bill text–
107th CONGRESS
1st Session
S. 1567

To foster innovation and technological advancement in the development of the Internet and electronic commerce, and to assist the States in simplifying their sales and use taxes.

IN THE SENATE OF THE UNITED STATES

October 18, 2001

Mr. ENZI (for himself, Mr. Dorgan, Mrs. Hutchison, Mr. Kerry, Mr. Thomas, Mr. Graham, Mr. Voinovich, and Mr. Hutchinson) introduced the following bill; which was read twice and referred to the Committee on Commerce, Science, and Transportation

A BILL

To foster innovation and technological advancement in the development of the Internet and electronic commerce, and to assist the States in simplifying their sales and use taxes.

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 Moratorium and Equity Act'.

SEC. 2. FINDINGS.

Congress makes the following findings:

(1) The moratorium of the Internet Tax Freedom Act on new taxes on Internet access and on multiple and discriminatory taxes on electronic commerce should be extended.

(2) States should be encouraged to simplify their sales and use tax systems.

(3) As a matter of economic policy and basic fairness, similar sales transactions should be treated equally, without regard to the manner in which sales are transacted, whether in person, through the mails, over the telephone, on the Internet, or by other means.

(4) Congress may facilitate such equal taxation consistent with the United States Supreme Court's decision in Quill Corp. v. North Dakota.

(5) States that adequately simplify their tax systems should be authorized to correct the present inequities in taxation through requiring sellers to collect taxes on sales of goods or services delivered in-state, without regard to the location of the seller.

(6) The States have experience, expertise, and a vital interest in the collection of sales and use taxes, and thus should take the lead in developing and implementing sales and use tax collection systems that are fair, efficient, and non-discriminatory in their application and that will simplify the process for both sellers and buyers.

(7) Online consumer privacy is of paramount importance to the growth of electronic commerce and must be protected.

SEC. 3. EXTENSION OF INTERNET TAX FREEDOM ACT MORATORIUM.

Section 1101(a) of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended to read as follows:

`(a) MORATORIUM- No State or political subdivision thereof shall impose--

`(1) any taxes on Internet access during the period beginning after September 30, 1998, unless such a tax was generally imposed and actually enforced prior to October 1, 1998; and

`(2) multiple or discriminatory taxes on electronic commerce during the period beginning on October 1, 1998, and ending on December 31, 2005.'.

SEC. 4. INTERNET TAX FREEDOM ACT DEFINITIONS.

(a) INTERNET ACCESS SERVICES- Section 1104 of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended by adding at the end the following new paragraph:

`(11) INTERNET ACCESS SERVICES- The term `Internet access services' means services that combine computer processing, information storage, protocol conversion, and routing with transmission to enable users to access Internet content and services. Such term does not include receipt of such content or services.'.

(b) INTERNET ACCESS- Section 1104(5) of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended by striking `telecommunications services.' and inserting `telecommunications services generally, but does include wireless web access services used to enable users to access content, information, electronic mail, or other services offered over the Internet, including any comparable package of services offered to users.'.

(c) TELECOMMUNICATIONS SERVICES- Section 1104(9) of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended by striking `and includes communications services (as defined in section 4251 of the Internal Revenue Code of 1986)'.

(d) WIRELESS WEB ACCESS SERVICES- Section 1104 of the Internet Tax Freedom Act (47 U.S.C. 151 note), as amended by subsection (a), is amended by adding at the end the following new paragraph:

`(12) WIRELESS WEB ACCESS SERVICES- The term `wireless web access services' means commercial mobile services (as defined in section 332(d)(1) of Communications Act of 1934 (47 U.S.C. 332(d)(1)), multi-channel, multi-point distribution services, or any wireless telecommunications services used to access the Internet.'.

SEC. 5. STREAMLINED SALES AND USE TAX SYSTEM.

(a) DEVELOPMENT OF STREAMLINED SYSTEM- It is the sense of Congress that States and localities should work together to develop a streamlined sales and use tax system that addresses the following in the context of remote sales:

(1) A centralized, one-stop, multi-state reporting, submission, and payment system for sellers.

(2) Uniform definitions for goods or services, the sale of which may, by State action, be included in the tax base.

(3) Uniform rules for attributing transactions to particular taxing jurisdictions.

(4) Uniform procedures for--

(A) the treatment of purchasers exempt from sales and use taxes; and

(B) relief from liability for sellers that rely on such State procedures.

(5) Uniform procedures for the certification of software that sellers rely on to determine sales and use tax rates and taxability.

(6) A uniform format for tax returns and remittance forms.

(7) Consistent electronic filing and remittance methods.

(8) State administration of all State and local sales and use taxes.

(9) Uniform audit procedures, including a provision giving a seller the option to be subject to no more than a single audit per year using those procedures; except that if the seller does not comply with the procedures to elect a single audit, any State can conduct an audit using those procedures.

(10) Reasonable compensation for tax collection by sellers.

(11) Exemption from use tax collection requirements for remote sellers falling below a de minimis threshold of $5,000,000 in gross annual sales.

(12) Appropriate protections for consumer privacy.

(13) Such other features that the States deem warranted to promote simplicity, uniformity, neutrality, efficiency, and fairness.

(b) STUDY- It is the sense of Congress that a joint, comprehensive study should be commissioned by State and local governments and the business community to determine the cost to all sellers of collecting and remitting State and local sales and use taxes on sales made by sellers under the law as in effect on the date of enactment of this Act and under the system described in subsection (a) to assist in determining what constitutes reasonable compensation.

SEC. 6. INTERSTATE SALES AND USE TAX COMPACT.

(a) AUTHORIZATION- In general, the States are authorized to enter into an Interstate Sales and Use Tax Compact. The Compact shall describe a uniform, streamlined sales and use tax system consistent with section 5(a), and shall provide that States joining the Compact must adopt that system.

(b) EXPIRATION- The authorization in subsection (a) shall expire if the Compact has not been formed before January 1, 2005.

(c) CONGRESSIONAL APPROVAL OF COMPACT-

(1) ADOPTING STATES TO TRANSMIT- Upon the 20th State becoming a signatory to the Compact, the adopting States shall transmit a copy of the Compact to Congress.

(2) CONGRESSIONAL ACTION-

(A) IN GENERAL- If a joint resolution described in subparagraph (B) is enacted into law within 120 calendar days, excluding congressional recess period days, of Congress receiving the Compact under paragraph (1), then sections 7 and 8 shall apply to the adopting States, and any other State that subsequently adopts the Compact.

(B) JOINT RESOLUTION- A joint resolution described in this subparagraph is a joint resolution of the two Houses of Congress, the matter after the resolving clause of which is as follows: `That Congress--

`(1) agrees that the uniform, streamlined sales and use tax system described in the Compact transmitted to Congress by the States pursuant to section 6(c)(1) of the Internet Tax Moratorium and Equity Act does not create an undue burden on interstate commerce; and

`(2) authorizes any State that adopts such Compact to require remote sellers to collect and remit sales and use taxes in accordance with such system .'

(C) EXPEDITED PROCEDURE FOR APPROVAL-

(i) RULES OF HOUSE AND SENATE- This paragraph is enacted--

(I) as an exercise of the rulemaking power of the House of Representatives and the Senate, respectively, and as such is deemed a part of the rules of each House, respectively, but applicable only with respect to the procedure to be followed in that House in the case of the joint resolution described in subparagraph (B), and they supersede other rules only to the extent that they are inconsistent therewith, and

(II) with full recognition of the constitutional right of either House to change the rules (so far as they relate to the procedure of that House) at any time, in the same manner and to the same extent as in the case of any other rule of that House.

(ii) APPLICABLE PROCEDURAL PROVISIONS- Except as otherwise provided in this paragraph, the procedures set forth in section 152 (other than subsection (a) thereof) of the Trade Act of 1974 (19 U.S.C. 2192) shall apply to the joint resolution described in subparagraph (B) by substituting the `Committee on the Judiciary' for the `Committee on Ways and Means' and the `Committee on Commerce, Science, and Transportation' for the `Committee on Finance' in subsection (b) thereof.

(iii) INTRODUCTION OF JOINT RESOLUTION AFTER COMPACT RECEIVED- Until Congress receives the Compact described in paragraph (1), it shall not be in order in either House to introduce the joint resolution described in subparagraph (B).

(iv) CONSIDERATION OF JOINT RESOLUTION- No amendment to the joint resolution described in subparagraph (B) shall be in order in either the House of Representatives or the Senate, and no motion to suspend the application of this clause shall be in order in either House. Within 120 calendar days, excluding congressional recess period days, after the date on which a joint resolution described in subparagraph (B) is introduced in either House, that House shall proceed to a final vote on the joint resolution without intervening action. If either House approves the resolution, it shall be placed on the calendar in the other House, which shall proceed immediately to a final vote on the joint resolution without intervening action.

SEC. 7. AUTHORIZATION TO SIMPLIFY STATE USE-TAX RATES THROUGH AVERAGING.

(a) IN GENERAL- Subject to the exception in subsection (c), a State that adopts the Compact authorized and approved under section 6 and that levies a use tax shall impose a single, uniform State-wide use-tax rate on all remote sales on which it assesses a use tax for any calendar year for which the State meets the requirements of subsection (b).

(b) AVERAGING REQUIREMENT- A State meets the requirements of this subsection for any calendar year in which the single, uniform State-wide use-tax rate is in effect if such rate is no greater than the weighted average of the sales tax rates actually imposed by the State and its local jurisdictions during the 12-month period ending on June 30 prior to such calendar year.

(c) ANNUAL OPTION TO COLLECT ACTUAL TAX- Notwithstanding subsection (a), a remote seller may elect annually to collect the actual applicable State and local use taxes on each sale made in the State.

(d) ALTERNATIVE SYSTEM- A State that adopts the uniform, streamlined sales and use tax system described in the Compact authorized and approved under section 6 so that remote sellers can use information provided by the State to identify the single applicable rate for each sale, may require a remote seller to collect the actual applicable State and local sales or use tax due on each sale made in the State if the State provides such seller relief from liability to the State for relying on such information provided by the State.

SEC. 8. AUTHORIZATION TO REQUIRE COLLECTION OF USE TAXES.

(a) Grant of Authority-

(1) STATES THAT ADOPT THE SYSTEM MAY REQUIRE COLLECTION- Any State that has adopted the system described in the Compact authorized and approved under section 6 is authorized, notwithstanding any other provision of law, to require all sellers not qualifying for the de minimis exception to collect and remit sales and use taxes on remote sales to purchasers located in such State.

(2) STATES THAT DO NOT ADOPT THE SYSTEM MAY NOT REQUIRE COLLECTION- Paragraph

(1) does not extend to any State that does not adopt the system described in the Compact.

(b) NO EFFECT ON NEXUS, ETC- No obligation imposed by virtue of authority granted by subsection (a)(1) or denied by subsection (a)(2) shall be considered in determining whether a seller has a nexus with any State for any other tax purpose. Except as provided in subsection (a), nothing in this Act permits or prohibits a State--

(1) to license or regulate any person;

(2) to require any person to qualify to transact intrastate business; or

(3) to subject any person to State taxes not related to the sale of goods or services.

SEC. 9. NEXUS FOR STATE BUSINESS ACTIVITY TAXES.

It is the sense of Congress that before the conclusion of the 107th Congress, legislation should be enacted to determine the appropriate factors to be considered in establishing whether nexus exists for State business activity tax purposes.

SEC. 10. LIMITATION.

In general, nothing in this Act shall be construed as subjecting sellers to franchise taxes, income taxes, or licensing requirements of a State or political subdivision thereof, nor shall anything in this Act be construed as affecting the application of such taxes or requirements or enlarging or reducing the authority of any State or political subdivision to impose such taxes or requirements.

SEC. 11. DEFINITIONS.

In this Act:

(1) STATE- The term `State' means any State of the United States of America and includes the District of Columbia.

(2) GOODS OR SERVICES- The term `goods or services' includes tangible and intangible personal property and services.

(3) REMOTE SALE- The term `remote sale' means a sale in interstate commerce of goods or services attributed, under the rules established pursuant to section 5(a)(3), to a particular taxing jurisdiction that could not, except for the authority granted by this Act, require that the seller of such goods or services collect and remit sales or use taxes on such sale.

(4) LOCUS OF REMOTE SALE- The term `particular taxing jurisdiction', when used with respect to the location of a remote sale, means a remote sale of goods or services attributed, under the rules established pursuant to section 5(a)(3), to a particular taxing jurisdiction.