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Internet Taxes

One current area of controversy is the issue of sales taxes for goods sold over the Internet. When the Internet first began to be widely used, there was a debate over whether goods sold over cyberspace should be subjected to a use or tax alternatively, a sales tax if the company selling the goods did business within the state.

In 1998, President Bill Clinton signed the Internet Tax Freedom Act (ITFA). The ITFA imposed a moratorium on all taxes of goods and services sold over the Internet for three years, until a decision was made on what kind of tax system to impose on Internet shopping and use. States could not collect sales or use taxes from Internet sellers unless the seller had a sufficient nexus with the state. The ITFA has now been extended until November, 2003. As of 2002, however, no decision has been made on what kind of sales or use tax system to allow states to impose on Internet goods.

With electronic commerce growing quickly many states believe it would be difficult to continue to lose revenue from Internet commerce not subject to taxation. On the other hand, Internet vendors worry that they may face the nightmarish prospect of having to deal with multiple taxes required by a host of states. It remains to be seen whether the federal government will do anything about this situation or will simply let the ITFA expire and let the states go their separate ways.

Inside Internet Taxes