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Update on the Internet Tax Freedom
Act
THE INTERNET TAX FREEDOM ACT (THE "ACT")
ENACTED IN OCTOBER, 1998, provided a general three-year moratorium
on the taxation of electronic commerce. It established the Advisory
Commission on Electronic Commerce (the "Commission"), which, earlier
this year, reported its findings to Congress. Unfortunately, the composition
of the Commission was split evenly between persons representing states
wishing to expand their taxation rights and persons representing the
businesses being taxed. Independent persons did not play a part in
the composition of the Commission, and hence, with their being a required
consensus for making recommendations to Congress by a two-thirds vote,
only three non-controversial issues were recommended.
There were however "Majority" and "Minority" proposals. The majority proposals dealt with significant tax and economic
issues. Several members of Congress have since introduced their versions
of internet related tax legislation based on either the majority or
minority reports. Accordingly, the Commission did advance Congressional
debate to the next level improving the quality of current legislative
proposals.
The most significant majority proposals
included suggesting that the current moratorium be extended for an
additional five years. The majority report further suggested clarification
of "sales tax nexus safe harbors", ie those factors which by themselves
would not create sufficient nexus to permit a state to impose collection
of obligations on remote sellers. Also, in an attempt to supplement
and modernize PL 86-272, the majority report proposed that Congress
clarify the circumstances that determine whether a seller has sufficient
nexus with a state to be required to pay income and franchise tax.
The business sector considers such clarification a way to ultimately
reduce the cost of doing business in various states. Finally, the
majority report would make permanent the current moratorium on any
transaction taxes concerning the sale of internet access.
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