California Internet Tax Freedom Act.
Signed by Governor: August 24, 1998.
Source: California State Legislature.

BILL NUMBER: AB 1614 AMENDED

BILL TEXT

AMENDED IN SENATE JULY 9, 1998
AMENDED IN SENATE JUNE 23, 1998
AMENDED IN SENATE JUNE 11, 1998
AMENDED IN SENATE MAY 27, 1998
AMENDED IN ASSEMBLY SEPTEMBER 5, 1997
AMENDED IN ASSEMBLY AUGUST 29, 1997
AMENDED IN ASSEMBLY JULY 18, 1997
AMENDED IN ASSEMBLY JULY 11, 1997
AMENDED IN ASSEMBLY JULY 3, 1997

INTRODUCED BY Assembly Members Lempert, Cunneen, Alquist, Bowen, Figueroa, Kaloogian, Perata, Sweeney, and Wayne

JUNE 3, 1997

An act to amend Section 6203 of, and to add Part 32 (commencing with Section 65001) to Division 2 of, the Revenue and Taxation Code, relating to taxation , and declaring the urgency thereof, to take effect immediately .

LEGISLATIVE COUNSEL'S DIGEST AB 1614,

as amended, Lempert. Sales and use tax: California Internet Tax Freedom Act.

The Sales and Use Tax Law imposes a tax on the gross receipts from the sale in this state of, or the storage, use, or other consumption in this state of, tangible personal property. That law imposes the sales tax upon "retailers," as defined, and requires every person desiring to engage in or conduct business as a "seller," as defined, to obtain a sales tax permit. Existing law provides that every retailer engaged in business in this state and making sales of tangible personal property for storage, use, or other consumption in this state, that engages in specified activity in this state shall, at the time of sale or at the time the storage, use, or other consumption becomes taxable, collect the tax from the purchaser. That law provides that "engaged in business in this state" does no include the taking of orders from customers in this state through a computer telecommunications network, as provided, and provides that these provisions shall become inoperative, as specified.

This bill would modify that inoperative date and make technical, clarifying changes to those provisions, as provided.

Existing law imposes various state income, franchise, property, and excise taxes and various user, regulatory, and franchise fees in connection with activity or property within the jurisdiction of this state. Existing law authorizes counties, cities, and other local agencies to impose various taxes and fees in connection with activity or property within those jurisdictions.

This bill would enact the "California Internet Tax Freedom Act" to prohibit, with specified exceptions, the imposition, assessment, or attempt to collect any of the following: a tax on Internet access, Online Computer Services, or the use of Internet access or any Online Computer Services; a bit or bandwidth tax; or any discriminatory tax on Online Computer Services or Internet access. The bill would make specified legislative findings and declarations in connection with that prohibition.

This bill would declare that it is to take effect immediately as an urgency statute.

Vote: 2/3 majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1. Section 6203 of the Revenue and Taxation Code is amended to read:

6203. (a) Except as provided by Sections 6292 and 6293, every retailer engaged in business in this state and making sales of tangible personal property for storage, use, or other consumption in this state, not exempted under Chapter 3.5 (commencing with Section 6271) or Chapter 4 (commencing with Section 6351), shall, at the time of making the sales or, if the storage, use, or other consumption of the tangible personal property is not then taxable hereunder, at the time the storage, use, or other consumption becomes taxable, collect the tax from the purchaser and give to the purchaser a receipt therefor in the manner and form prescribed by the board.

(b) As respects leases constituting sales of tangible personal property, the tax shall be collected from the lessee at the time amounts are paid by the lessee under the lease.

(c) "Retailer engaged in business in this state" as used in this section and Section 6202 means and includes any of the following:

(1) Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business.

(2) Any retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property.

(3) As respects a lease, any retailer deriving rentals from a lease of tangible personal property situated in this state.

(4) Any retailer soliciting orders for tangible personal property by means of a telecommunication or television shopping system (which utilizes toll free numbers) which is intended by the retailer to be broadcast by cable television or other means of broadcasting, to consumers located in this state.

(5) (A) Any retailer soliciting orders for tangible personal property by mail if the solicitations are substantial and recurring and if the retailer benefits from any banking, financing, debt collection, telecommunication, or marketing activities occurring in this state or benefits from the location in this state of authorized installation, servicing, or repair facilities.

(B) This paragraph shall become operative upon the enactment of any congressional act that authorizes states to compel the collection of state sales and use taxes by out-of-state retailers.

(6) Any retailer having a franchisee or licensee operating under its trade name if the franchisee or licensee is required to collect the tax under this section.

(7) Notwithstanding Section 7262, a retailer specified in paragraph (4), (5), or (6) above, and not specified in paragraph (1),(2), or (3) above, is a "retailer engaged in business in this state" for the purposes of this part and Part 1.5 (commencing with Section 7200) only.

(d) (1) For purposes of this section, "engaged in business in this state" does not include the taking of orders from customers in this state through a computer telecommunications network located in this state which is not directly or indirectly owned by the retailer when the orders result from the electronic display of products on that same network. The exclusion provided by this subdivision shall apply only to a computer telecommunications network that consists substantially of on-line communications services other than the displaying and taking of orders for products.

(2) This subdivision shall become inoperative upon the operative date of provisions of a congressional act that authorize states to compel the collection of state sales and use taxes by out-of-state retailers.

(e) Except as provided in this subdivision, a retailer is not a "retailer engaged in business in this state" under paragraph (2) of subdivision (c) if that retailer's sole physical presence in this state is to engage in convention and trade show activities as described in Section 513(d)(3)(A) of the Internal Revenue Code, and if the retailer, including any of his or her representatives, agents, salespersons, canvassers, independent contractors, or solicitors, does not engage in those convention and trade show activities for more than seven days, in whole or in part, in this state during any 12-month period and did not derive more than ten thousand dollars ($10,000) of gross income from those activities in this state during the prior calendar year. Notwithstanding the preceding sentence, a retailer engaging in convention and trade show activities, as described in Section 513(d)(3)(A) of the Internal Revenue Code, is a "retailer engaged in business in this state," and is liable for collection of the applicable use tax, with respect to any sale of tangible personal property occurring at the convention and trade show activities and with respect to any sale of tangible personal property made pursuant to an order taken at or during those convention and trade show activities.

(f) The Legislature finds and declares that the deletion of language by the act adding this subdivision that was contained in paragraphs (5) and (8) of subdivision (c) is intended to codify the holdings of recent court cases.

SEC. 2. Part 32 (commencing with Section 65001) is added to Division 2 of the Revenue and Taxation Code, to read:

PART 32. CALIFORNIA INTERNET TAX FREEDOM ACT

65001. This part shall be known and may be cited as the "California Internet Tax Freedom Act."

65002. The Legislature finds and declares all of the following:

(a) As a massive global network spanning not only state but international borders, the Internet is inherently a matter of interstate and foreign commerce within the jurisdiction of the United States Congress under Section 8 of Article I of the United States Constitution.

(b) Even within the United States, the Internet does not respect state lines and operates independently of state boundaries. Addresses on the Internet are designed to be geographically indifferent. Internet transmissions are insensitive to physical distance and can have multiple geographical addresses.

(c) The electronic marketplace of services, products, and ideas available through the Internet or Online Computer Services 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.

(d) Taxes imposed on Internet access or Online Computer Services by state and local governments could subject consumers, businesses,and other users engaged in interstate and foreign commerce to multiple, confusing, and burdensome taxation, could restrict the growth and continued technological maturation of the Internet itself, and could call into question the continued viability of this dynamic medium. This could threaten Internet access for Californians at home, at work, and at school, and is counterproductive to established state policies, such as the promotion of telecommuting.

(e) Companies providing Internet access are making substantial capital investments in new plants and equipment. Multiple and excessive taxation could place that investment at risk, and discourage the expansion of investment in Internet access equipment, thereby placing California at a long-term competitive disadvantage.

(f) Services provided by local governments are important and valuable to both consumers and businesses, and this bill is not intended to interfere with existing sources of revenue that provide funding for local government services. This act is intended to impose a moratorium on new taxes imposed on Internet access and Online Computer Services, as well as the discriminatory application of existing or new taxes, as defined herein, to Internet access or Online Computer Services. Nothing in this act shall be interpreted as precluding the imposition or collection of new or existing taxes of general application that are imposed or assessed in a uniform and nondiscriminatory manner without regard to whether the activities or transactions taxed are conducted through the use of the Internet, Internet access, or Online Computer Services.

(g) A uniform and coherent national policy concerning national and subnational taxation of the Internet, in a manner which does not unreasonably burden interstate and foreign commerce, may be developed by the Congress of the United States, acting pursuant to the powers granted to it by clause 3 of Section 8 of Article I of the United States Constitution. Until that national policy is developed, and determined by the Legislature to be in the best interest of the people of the State of California, a limited preemption of local taxing authority of the Internet and Online Computer Services is appropriate.

(h) The Legislature finds and declares that currently the state is not imposing any discriminatory taxes or fees , within the meaning of this act, on Internet access or Online Computer Services. It is the intent of this Legislature that no existing or future state taxes or state fees be imposed by the state in a discriminatory manner upon Internet access or Online Computer Services. This statement of legislative intent is meant to place the greatest possible barrier to the creation of discriminatory taxes or fees upon this Legislature and all future Legislatures.

(i) The Legislature finds and declares that no local government is currently imposing and presently collecting any tax on Internet access or Online Computer Services that is discriminatory within the meaning of this act.

(j) For these reasons, the Legislature finds that, subject to certain exceptions designed to protect existing local government revenue, preemption of local government authority to levy taxes on Online Computer Services and access to the Internet is a matter of statewide concern.

65003. For purposes of this part:

(a) "Internet" means the global information system that is logically linked together by a globally unique address space based on the Internet Protocol (IP), or its subsequent extensions; and is able to support communications using the Transmission Control Protocol/Internet Protocol (TCP/IP) suite, or its subsequent extensions, or other IP-compatible protocols; and provides, uses, or makes accessible, either publicly or privately, high level services layered on the communications and related infrastructure described herein.

(b) "Online Computer Services" means the offering or provision of information, information processing, and products or services to a user via the Internet, whether or not they are offered as part of a package of services that are combined with Internet access and offered to the user for a single price, or provided and billed separately. "Online Computer Services" does not include telephone service or telecommunications services to the extent that the amounts paid for those services are taxed determined by the Internal Revenue Service to be subject to tax under Section 4251 of Title 26 of the United States Code.

(c) (1) "Internet access" means the offering or provision of the storage, computer processing, and transmission of information that enables the user to make use of the resources found via the Internet. "Internet access" does not include telephone service or telecommunications services to the extent that the amounts paid for those services are taxed determined by the Internal Revenue Service to be subject to tax under Section 4251 of Title 26 of the United States Code.

(2) A provider of Online Computer Services or Internet access shall not be deemed as also meeting the provisions of Section 234 of the Public Utilities Code strictly by virtue of providing Online Computer Services or Internet access.

(d) "Franchise fee" means the fee imposed pursuant to Sections 6001 and 6231 of the Public Utilities Code, or Section 53066 of the Government Code.

(e) "Discriminatory" means a tax levied on Online Computer Services or Internet access that is either of the following:

(1) At a rate higher than that imposed on other businesses or services generally described in Codes3571, 3572, 3575, 3577, 3670 to 3679, inclusive, 5045, and 7371 to 7373, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, as of the effective date of this act.

(2) Applicable to the taxpayer solely by virtue of the offering of or the use of Online Computer Services or Internet access and therefore not applicable to taxpayers not engaged in the offering of or the use of Online Computer Services or Internet access.

(f) "Bit tax" means any transactional tax imposed on or measured by the amount of digital information transmitted electronically, or any transactional tax imposed on or measured according to any of the technological or operating characteristics of the Internet, but does not include taxes imposed on the provision of telecommunications services that are determined by the Internal Revenue Service to be subject to tax under Section 4251 of Title 26 of the United States Code.

(g) "Bandwidth tax" means any transactional tax imposed on or measured by the physical capacity of an available signal to transmit information electronically or by fiber optics.

65004. (a) Except as provided in subdivision (b), no city, county, city and county, or special district may city, county, or city and county may impose, assess, or attempt to collect any of the following:

(1) A tax on Internet access, Online Computer Services, or the use of Internet access or any Online Computer Services.

(2) A bit tax or bandwidth tax.

(3) Any discriminatory tax on Online Computer Services or Internet access.

(b) The prohibition in subdivision (a) against the imposition of taxes or fees shall not apply to either of the following:

(1) Any existing tax, including any sales and use tax, utility user tax, or franchise fee, that is imposed or imposition of taxes shall not apply to any new or existing tax of general application, including but not limited to any sales and use tax, business license tax, or utility user tax that is imposed or assessed in a uniform and nondiscriminatory manner without regard to whether the activities or transactions taxed are conducted through the use of the Internet, Internet access, or Online Computer Services.

(2) Any franchise fee on online computer services delivered over a cable television system, unless the Federal Communications Commission or a court of competent jurisdiction finds that those services are not cable services, as defined in Section 522(6) of Title 47 of the United States Code. The operation of this paragraph may be suspended by contract between a cable television authority and a cable television operator.

(c) A cable television franchise fee may not be imposed on Online Computer Services or Internet access delivered over a cable television system, if the Federal Communications Commission by final order, or a court of competent jurisdiction rendering a judgment enforceable in California, finds that those are not cable services, as defined in Section 522(6) of Title 47 of the United States Code and are, therefore, not subject to a franchise fee. However, if that final order or judgment is overturned or modified by further administrative, legislative, or judicial action, that action shall control. The operation of this subdivision may be suspended by contract between a cable television franchising authority and a cable television operator.

(d) This part shall become inoperative five three years from the effective date of the act adding this part.

SEC. 3. This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are:

In order to maintain the continued viability of the Internet and maintain a uniform policy of taxation relating to Internet activity, it is necessary that this act take effect immediately.