On October 21, 2001, the current moratorium on Internet taxes expires. The subject of Internet taxation has been bandied about since 1992. In this article, I hope to enlighten you a little about what Internet taxes are and whether or not they will ever be enforced and collected.
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"While you may have saved the extra costs involved with Interstate taxation, you are not nearly free of the future problems..." |
The taxes that are under a moratorium do not involve taxation of products purchased over the Internet. The moratorium stops the taxation of Internet access by States in the US that do not already charge Internet access taxes.
As far as the taxation of purchases made over the Internet, the US Supreme Court already decided on that in 1992. The court basically stated that States could only collect sales taxes on Internet purchases form vendors within their state. In other words, if your company physically resides in Utah, the state of Michigan cannot require one of their residents to pay the Michigan sales tax on an item purchased from your Utah Company. By the same token, if a Utah resident purchases a product from your Utah-based business, you have to charge them the appropriate sales taxes for the state of Utah.
While the states are desperately trying to overturn or amend the 1992 Supreme Court decision, it's not very likely they will get their way. Of course, challenges to that 1992 ruling were ineffective during the economic e-commerce boom of the 90's. The minds of the lawmakers may change in the shadows of looming economic hard times. Regardless, the moratorium has little to do with online sales, but there are some "exceptions" and "amendments" nestled within the Internet Tax Freedom Act of 1998. The Internet Tax Freedom Act is the moratorium already mentioned. This is the moratorium that expires on October 21. The moratorium states this:
TITLE I--MORATORIUM ON CERTAIN TAXES
SEC. 101. MORATORIUM.
(a) Moratorium.--No State or political subdivision thereof shall impose any of the following taxes during the period beginning on October 1, 1998, and ending 3 years after the date of the enactment of this Act--
(1) taxes on Internet access, unless such tax was generally imposed and actually enforced prior to October 1, 1998; and
(2) multiple or discriminatory taxes on electronic commerce.
The tricky part of that moratorium lies within the rest of the bill. Three things every adult online professional should read thoroughly within this bill are:
1. The Coats Amendment
2. Blocking Software
3. Children's Online Privacy Protection Act of 1998 (COPA)
One of the most important decisions facing our industry is going before the US Supreme Court. If the moratorium on Internet access taxes is made permanent, the exceptions and amendments to it will likely be used as legal president when arguments are made before the US Supreme Court regarding COPA. Understand that COPA and other regulations concerning "prurient content" are the exemptions and amendments to the Internet Tax Freedom Act.
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While you may have saved the extra costs involved with Interstate taxation, you are not nearly free of the future problems concerning the sale of Internet pornography. COPA is not yet a dead issue. Even though online smut is more of a freedom of speech issue in the US, it's intermingled with taxation laws.
Here are two very informative places you can visit to read and learn about Internet taxation:
Tech Law Journal
(http://www.techlawjournal.com/congress/)
This site has the entire text of the Internet Tax Freedom Act.
Ecommerce Tax
(http://www.ecommercetax.com/faq.htm)
A very good FAQ covering not only the moratorium but also Internet taxes in general.
Two places you can go to learn more about COPA are:
COPA Commission
(http://www.copacommission.org/)
The online home page of the lawmakers behind COPA.
ACLU
(http://www.aclu.org/court/index.html)
This is the American Civil Liberties Union's Supreme Court watchdog page.
Most lawmakers would like to see the Internet Tax Freedom Act become a permanent ban on Internet access taxes, but this act also has rather vague allusions to online pornography and just what is considered "objectionable". Don't let the decision on this act slip by you without studying its real implications.