HBA-ATS H.B. 1115 76(R) BILL ANALYSIS
Office of House Bill AnalysisH.B. 1115
By: Hartnett
Ways & Means
3/2/1999
Introduced
BACKGROUND AND PURPOSE
In October 1998, Congress passed the Internet Tax Freedom Act. Among other
things, the statute prohibits state and local governments from imposing
taxes on Internet access for three years. However, the legislation includes
a grandfather clause that allows states to continue taxing Internet access
if they have taxed it prior to October 1, 1998. These states include
Connecticut, Iowa, Nebraska, North Dakota, Ohio, South Carolina, South
Dakota, Tennessee, Texas, and Wisconsin.
Although the legislature has never passed legislation specifically
authorizing the taxation of Internet access, the sales tax statute on
"information services" has been applied to Internet services. Taxing
Internet access may discourage Internet service providers from remaining or
locating their businesses in Texas. In addition, taxing access service
increases the costs for consumers who wish to use the Internet.
H.B. 1115 exempts on-ramp Internet access with a value of $25 or less from
state sales tax, but does provide that all other "Internet access service"
is a taxable service subject to state sales tax. In addition, this bill
imposes a tax on bundled services, i.e., those services that bundle on-ramp
Internet access service with Internet access service to proprietary
information or sites that are not freely accessible, data processing
services, information services, telecommunication services, or cable
television service. This bill also sets forth that a provider of on-ramp
Internet access service has the burden of proving that the service is
exempt, and it establishes September 1, 2002, as the expiration date for
the exemption.
RULEMAKING AUTHORITY
It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Subchapter A, Chapter 151, Tax Code, by adding Sections
151.00393 and 151.00394, as follows:
Sec. 151.00393. "INTERNET." Defines "Internet" as the worldwide computer
network in which information is transmitted via wire or radio using the
Transmission Control Protocol/Internet Protocol (TCP/IP) or any predecessor
or successor protocols to TCP/IP.
Sec. 151.00394. "INTERNET ACCESS SERVICE." Defines "Internet access
service" as a service, including a package of services, offered to
consumers that enables them to access information, including proprietary
content, on the Internet.
SECTION 2. Amends Section 151.0101(a), Tax Code, to include Internet
access service other than on-ramp Internet access service exempted by
proposed Section 151.325 within the definition of "taxable service," making
Internet access service taxable under the Tax Code.
SECTION 3. Amends Subchapter C, Chapter 151, Tax Code, by adding Section
151.061, as follows:
Sec. 151.061. BUNDLING OF CERTAIN SERVICES. (a) Imposes a tax on the
sale, use, or consumption in this state of a service that bundles on-ramp
Internet access service exempt under proposed Section 151.325 with Internet
access service to propriety information or sites that are not freely
accessible, data processing service, information service, telecommunication
services, and cable television service.
(b) Establishes three methods to compute the value of a package of on-ramp
Internet access service bundled with the taxable services described by
Subsection (a), subject to Subsection (c). A provider of bundled services
may select either the price of the taxable services as offered to the
public by the provider on an unbundled basis, the market price for the
taxable services that the provider is able to demonstrate as objectively
verifiable, or the cost of providing the taxable services that the provider
is able to demonstrate as technologically and financially accurate
(c) Limits the value of exempt Internet on-ramp access service bundled in a
package with the taxable services described by Subsection (a) to $25 a
month.
(d) Establishes September 1, 2002, as the expiration date for Section
151.061.
SECTION 4. Amends Subchapter H, Chapter 151, Tax Code, by adding Section
151.325, as follows:
Sec. 151.325. ON-RAMP INTERNET ACCESS SERVICE. (a) Exempts the imposition
of taxes under Chapter 151 (Limited Sales, Excise, and Use Tax) for the
sale, use, or other consumption in this state of Internet access service
that is limited to providing an on-ramp connection to information and sites
that are freely accessible.
(b) Specifies that on-ramp Internet access service and the exemption under
Subsection (a) do not apply to Internet access service to propriety
information or sites that are not freely accessible, data processing
service, information service, telecommunication services, and cable
television service.
(c) Sets forth that a provider of on-ramp Internet access service has the
burden of proving that the service is exempt under Section 151.325. To
succeed, the provider must demonstrate that none of the services listed
under Subsection (b) are provided as part or otherwise bundled with the
on-ramp Internet access service, or if a service listed under Subsection
(b) is provided as part of otherwise bundled with the on-ramp Internet
access service, the provider has determined the price of the taxable
service in accordance with Section 151.061 and has collected the tax on
that service.
(d) Provides that the exemption under Section 151.325 does not apply to the
amount by which the value of on-ramp Internet access service is greater
than $25 a month.
(e) Establishes September 1, 2002, as the expiration date for Section
151.325.
SECTION 5. Effective date: the first day of the first calendar quarter
beginning on or after the date that it may take effect under
Section 39 (Time of taking effect of laws; emergencies; entry on
journal), Article III, Texas Constitution.
Makes application of this Act prospective.
SECTION 6. Emergency clause.