BILL NUMBER: AB 1614 CHAPTERED
BILL TEXT
CHAPTER 351
FILED WITH SECRETARY OF STATE AUGUST 24, 1998
APPROVED BY GOVERNOR AUGUST 24, 1998
PASSED THE ASSEMBLY AUGUST 6, 1998
PASSED THE SENATE AUGUST 3, 1998
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.
LEGISLATIVE COUNSEL'S DIGEST
AB 1614, 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 not
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.
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, 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 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 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
described in Codes 3571, 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, 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 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.
(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 three years from the
effective date of the act adding this part.