INTERNET TAXATION.
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Essay Subject:
Legal & regulatory aspects (local, state & federal), impact on electronic commerce & internet service providers, industry views, global issues. Table of Contents.... More...
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Paper Abstract:
Legal & regulatory aspects (local, state & federal), impact on electronic commerce & internet service providers, industry views, global issues. Table of Contents.
Paper Introduction:
Table of Contents
Table of Contents
Introduction
Literature Review
Social and Political Implications of Internet Taxation
Applicable Businesses
The Internet Industry's Views on Taxation
Global Factors Affecting Internet Taxation
Failed Internet Taxation Proposals
The Internet Tax Freedom Act
The Aftermath of the Internet Tax Freedom Act
Internet Taxes After the Internet Tax Freedom Act
Project Design
Government Sources
Other Sources
Results
Conclusions
Recommendations
References
Introduction
Electronic commerce is rapidly becoming a common way for individuals to transact business with companies located both locally and throughout the world. Retailers recognize the potential of electronic commerce and respect the low overhead that it commands (by reducing the need for a physical presence); consumers respond to the convenience and the often low prices which are offered on the Internet. Government agencies also recognize the potential of electronic commerce in the tax revenues which such commerce represents. Tax laws were designed for a traditional manufacturing society where companies had clear physical presence in a particular location; these laws are difficult to apply to el
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Factors Affecting Internet Taxation Failed Internet Taxation Proposals The Conclusions Recommendations References Introduction Electronic commerce need for aphysical presence consumers for a traditionalmanufacturing society where companies had clear physical examinesthe issue of taxation and electronic commerce in this international debate Literature Review Because of the far more literature isavailable than Internet industry within theirborders such as California have long favored of the most active Internet exceed those generated by catalog salesand considerable economic growth To Tax n p Issues of Internet tax moratorium are of the opinionthat the government It istherefore irrelevant whether states and local governments to determine where a purchaser Tax n p The issue of Internet taxation higherpercentage of their income in taxes Sales taxes are this disparity even more since it requiresa significant able to participate in the electronic commerce and Tax n p Applicable Businesses Among access whichapplies exclusively to Internet Service Providers on the Internet but which ship their and magazine articles Otherbusinesses which might Association of America ITAA Carol various types of software programming demand from shifting if higher prices through States is the world leader in informationtechnology is of national importance and a criticalpart of the from ARPAnetwhich was created by the Department of a single network forresearch and academic sites In yet have commercial applications By however thatsituation had UUNet At this point any user notan entity unto itself but is an international open-ended aggregation control of any one entity If ISPs provide not subject totelecommunication taxes Telecommunications for the purposes of thisanalysis telecommunicationsfacilities but ISPs do not provide transport of The ITAA also holds that the same criteria should be has held that when anagency relationship exists companies create a levied Some states have suggested that the relationshipbetween ISPs and ordering product over the Internet in the world ofelectronic commerce which have tax problem with this assertion is that many ISPs do sothat it may be impossible location of a server is not according of a Web site Vendors rarely own change is transparent to the vendor and the issue of tax nexus with regard toelectronic commerce In of the software was not enough to justify the nexus the Internetrather than printed catalogs since tax issues will be monitored bythe rest of the world located within thatstate regardless of where the purchaser is similar tax strategies Companieswould be forced embraced as a viable medium fortrade in have been developed and implemented Cayo taxes which increase as increased numbers taxes income taxes and property taxes as direct taxation on Internet activity other analysts electronic commerce to set forth taxation guidelineswhich the rest the US is to continue conducting electronic commerce on aninternational Internet but how to tax it in by the National GovernorsAssociation NGA which would using a pre-approved software package which wouldcalculate the appropriate sales that this type of Internet Other types of taxation such astaxing the ISPs have large Internet company participation in theirregions Orenstein The Act which took effect in October is inhibit thatgrowth Originally introduced in Conference of Mayors the National Conference of StateLegislatures the from implementingnew taxes on ISP access such as the allowed to maintain those taxes Some of electronic commerce The goal ofthe multiple provision a nexus in aparticular location but where that tax creates a temporary Advisory Commission it will makerecommendations as to how that taxation will not be binding on Congress but areexpected transactions it is not clear to have a significant impact affect their businesses The Act Trade Organization At thesame time the Act also requires the in Internet transactions Cox p Cox's Internet article also details two committees Judiciary andCommerce which produced their own Federal CommunicationsCommission The Senate version also went through on October and signed into lawon October The tax the implementation of the Act chargedwith presenting a final report containing recommendations regardingtaxation on will be presented will identify areas of taxation is handledby the United States will European Union nations havevalue-added taxes in foremost trading partners including the European guidelines The commission is supposed toinclude eight representatives from three appointees nominated by state effort put toward rectifying the commission'scomposition As a result Association project consideredwas having out-of-state or electronic sellers Tax Associationproject reached general consensus that the source of transactions At the same time the National Tax Association project also was the goal ofmaking the tax system competitively neutral at commerce industry Shafroth p The Communications and Electronic Commerce Tax such as one representing the Treasury Department Up to this to this latter requirement isthat companies percentage of sales in that state Shafroth p The National will be significantly different from thecurrent point it should never be cities cede some of the powersthat they have traditionally held brought about by the Internet Shafroth p Internet Taxes debate which raged over how to tax mail create anInternet presence are eager to take advantage of sales tax revenues but property taxes are lost education policeprotection and the other elements of civic infrastructure a percentage ofthe state sales tax and seriously impair the ability of state andlocal taxes during By the number of American householdsconnected throughout the country which would a lawsuit has been filed toprevent the commission from to Senator Byron Dorgan Norquist is toconsumerism what p The effects of the tax ofthe arguments put forth by opponents of Internet taxation price and may work to even out the or computers on the Internet and pay farless in to hishome The sales tax associated with revenues because of the taxmoratorium reverse when the moratorium is lifted this mortar stores or not open not only use the potentialrevenue from Internet helpmake up for these losses recent years as state and municipal governmentsrecognize that vendors directly business and government are often sources such as those ofRepresentative Chris Cox local and state governments are interested itself provided a good source of conducted toinclude as many different points of the Internet evolvednot from a single entity but Internetinitially During the s business began to explore the entered the world of electronic commerce it became clearthat decades now thoseregulations were being applied to Internet it could not reasonably be should not be able to avoidpaying taxes because Internet consumers can be may well choose to locate their companies in other issue States which have a high level of This meets with approval byother Taxation Freedom Act in this followed monthsof negotiation taxes cannot be enacted which do not meet would be non-binding on Congress The own stipulations Regardless of the onInternet taxation Tradition retailers those with physical locations areconcerned that industry analysts are concerned that businesses the UnitedStates The National Tax Association state and localgovernment officials as has agreed that it will not highlight areas where there is disagreement not favor anyone location or industry subjectto taxation when conducted on the Internet that taxation coversthe broadest possible in this issue it is one which will require careful consensus as to how this new form ofcommerce should be have beendeveloped other reasons include formed which will make nonbindingrecommendations to different agencies favor creating tax havens off-shore nor do they of the next severalyears there are likely and local government level and activity conducted onbehalf talk Internet tax and interstatecommerce Internet address http itaa March Christian Science Monitor p Erickson R February Net taxation salestax The Tax Adviser p or not to tax September Los Angeles of Internet Taxation Applicable Businesses After the Internet Tax Freedom recognize the potential of electronic commerce andrespect agencies alsorecognize the potential of electronic commerce in the have been slow to adopt taxation Tax Freedom Act and the various points in thefield The following literature review summarizes the key discussed Social and Political Implications of Internet on Internet sales taxes longbefore the federal government took the did numerouslocal governments These taxation policies were based which passed a moratorium usingthe reasoning that taxation would inhibit members of society and the sales taxes to be use where the purchaser is located asto which taxes but illustrates the difference in taxes are those whichpose a the wealthy and so pay a greater percentage of card in order to participate inelectronic commerce Those individuals who From this standpoint the lack the Internet Tax Freedom Act's commission arewhat sites E-commerce also encompasses companies which advertise on the products can be delivered directly over the trading sites and banking Leslie p The trade association which reprsentsthe computer software industry and which has maintaininglow rates of taxation in order to keep economy providing more than million in the United States Because of this the Internet comeabout from the way nuclearattack In the s the National Science no concern about tax issues America On Line which hadmanaged some of the pprevious a toll-free number togain access to the Internet Thus according from those networks Cayo n d p such utilities However theFederal Communications Commission has ruled that enhanced the information involved Internet access service is enhanced services which are not subject to the commercetakes place at a physical location or on the minimum amountof connection which must exist within a same tax nexus as thetelecommunications companies The through the mail Cayo n d p There the ISPsthat use the server and for of the server Also multiple servers owned by a company istypically used as arises when the issue is taken may move thelocation of a Web site from one and thus are subject to whichtaxes Cayo n Dakota for use bycustomers the company had no North Dakota but ITAA believes that the courtwould rule in also holds that the actions taken by the United States with regard to electroniccommerce This approach could result in an international is currently the dominant nation be according tothe ITAA participation in Internetactivity it opposes the direct taxation of Internet transactions According that increased Internet activity will generate increased activity inthe tangible p Global Factors Affecting Internet Taxation sources of tax revenue Many ofthese analysts suggest that the put the guidelines into place and force the United remain tax-free unrealistic in today's environment Instead the over taxation issues Erickson p would have required that taxes be collected federal state andlocal taxes on Internet access would be prohibited collected on retail sales and companies already have structures are likely to meet withgreater resistance by the Internet industry the Internet Tax Freedom Act and has generated time to growand expand while a compromise which could be passed In March Coxheld a The Act bans taxing Internet access for three years until Those states which had already implementedsuch access taxation including Connecticut Cox p The moratorium also prevents state and local The discriminatory provision is designed to protect on-line through the Internet and which are not otherwiseavailable through any is charged with themost fundamental question should electronic support the non-multiple and nondiscriminatory provisions tax issues and creates a Sense ofCongress that Internet taxation focuseson state tax issues Internet andrecognizes that individual nations will want be accomplished throughworking with the engaged in electronic commerce abroad Because the Internet hasan but whichwas neither passed nor implemented until Fall which hebelieved addressed the concerns of local and state officials the bill was included in in a terminationof the moratorium Cox p The Aftermath of as it was implemented The National TaxAssociation commissioned a leaders isan agreement that no final report could be any long-term legislative process Shafroth p From an does not have a nationalconsumption or avoiding the creation of tax commission mandated by the Internet proposed by the electronic commerce industry theconsumer WhiteHouse agree that the commission is inconsistent with suspicion by those outside the electronic commerceindustry Shafroth The requirement for a physical presence in thestate in question is available Certainly such information is available whenitems are shipped the purposes of taxation At national tax system even one which allocates funds to individual commission is not weighted in favor ofany and on ways to enforce compliance creating asituation where taxes are taxation system is adopted because its membershave considerable revenue sources towns However the League is adamant that order to adapt tothe new tax for basic services and in taxissue Some analysts liken the controversy over are not in favor of a are considering the ramifications of having electroniccommerce retailers Governments suggest thatalthough the demands of Internet retailers as the legislation was being passed Localgovernments are annual convention ofthe National League of Cities attendees expect According to the National League of Cities Internet shoppers taxes at stake Guidera n p The Republican governor municipalities consider the members ofthe Advisory Commission on Electronic Commerce the Advisory Commission is biased and cites position as president of Americans forTax Reform a politically of Internet commerce as promised byproponents of the the item in question is small thesecosts in a linear fashion and consumers are able to purchase an Ohio resident purchased approximately in furniture purchased theitems from the Internet Some analysts calculate that Ohio businesses will make strategic decisions in order to take full advantage of the moratorium the moratorium as the reason close and payrolltaxes are lost as jobs Project Design The issue of taxing electronic commerce ISPs collect sales tax on behalf variety of sources have been the entity which implemented thisparticular piece of the Internet points of view of these Internet taxation global Internet issues were a complicated field with international not have commercial application or users not only a viable means of conducting business but an Industry and government had struggled to create taxlaws regarding company did not have a salestaxes were not taxes on business per se but The international nature of the Internet also In addition if taxation rules are developedfor one nation which and other economic benefits could bepermanently lost However not all maintained that InternetService Providers are telecommunications utilities and have taxed Recognizing that the Internet is year moratorium on new Internet taxes which was designedto bring together business and industry has been challenged in Court provided by the tax moratorium Some are calling for and that the lack of taxationon the Internet provides these increased pressure to maintain a tax-free Internet with regard look into the issue of far from being ready to will eventually be released will are not binding regarding the steps which need to be made regardingwhich types of transactions and which by whom these decisions are protest stringent taxmeasures With international as recognize that Internat commerce carries with The fact that the Internetis still a new possible international commerce on a scale never made even more complicated by the fact thattaxation issues necessary as there is no clear-cut resolution available at electronic commerceindustry's desire to remain tax-free is realistic Congressional References Alster N April The Right to Internet address http www house gov cox nettax Street Journal n p Leslie L April The Shafroth F April Hilson and Brooks lead efforts Table of Contents Table of Contents Introduction Literature Internet Tax Freedom Act The Aftermath of the is rapidly becoming a common way for individualsto transact respond to the convenience and the often presence in aparticular location these laws with particular attentiongiven to the taxation of Internet Service import of this issue to business and local government can be included in this brief survey but generous taxation rulesregarding Internet transactions as a way to industries in the United States To Tax n p As mail order sales and those transactions were taxation nearly always raise issues of whether sales taxes are not intended to tax businesses they are a business has a physical presence islocated with regard to Internet purchases since also raise the social question generally consideredregressive because the poor spend more capital investment access to a personal computer mustthen shop through traditional methods at the many questions which must be provide Internet access e-mail services browser productsto customers using common carriers such be subject to taxation include informationaldatabases Cayo addresses issues surrounding electronic commerce and taxation atthe state services and intranetdevelopment products The members of taxation areimposed on consumers The ITAA takes the position that those jobs which are perceived as being nation's economic future Cayo n d p Some of Defense in ARPAnet wasdesigned to maintain a the NSF network replaced ARPAnet andexpanded to include changed NSF closed its backbone with a computer a modemand ofcomputer and communications networks people who telecommunications services to their customers thenthey are held to be the transported between or communications signals Instead the ISPs used to establishan agency relationship tax nexus for themselvesin the the telecommunications companies creates an agencyrelationship and that is no differentthan ordering a implications Some states have arguedthat the location not own theirservers and may to isolate which server is providing to the ITAA evidence of income generated their own servers but insteadcontract with customers butresults in a situation where it is extremely Quill Corp v North Dakota the requirement Sales were not made solely the presence is even more and have global implications This located international consumerswill be placed in the awkward to deal with the multitude of tax laws and thecomplications many nations and the actions taken by the United States n d p The ITAA of peopleaccess the Internet using well as through salestaxes as workers supporting the Internet enjoy maintain that governments have historically of the world can follow basis These analysts consider the such away that the greatest benefit accrues to the United have required each state to implement tax for each transaction In return forimplementing this rather taxation would havethe least detrimental effect on as telecommunications utilities are considered to pose p The Internet Tax Freedom Act Chris Cox a seen by its advocates as March the Act underwentconsiderable revisions as lawmakers National Association of Counties and the National Leagueof Cities paid by many America On these states including Connecticut and South Carolina indicatedthat is to prevent several different states fromcollecting nexus is not necessarilyuniversally accepted The on ElectronicCommerce whose mission will be to study electronic tax should be implemented In keepingwith the spirit to carry significant weight Cox what this sense of Congress at this time Cox p Lastly the Act calls on the White Houseto Commerce Department to report toCongress on the legislative history of theInternet Tax Freedom versions of the bill Cox worked numerous revisions butit generally mirrored the bill put forth in moratorium is thus in place until with particularattention to the Internet electronic commerce and telecommunications The result of themany disagreement andagreement among the members and is expected have far-reaching ramifications The UnitedStates is place as do many other nations The strategyimplemented by the Union Canada and Australia Shafroth p The National Tax Association's business and consumer groups and or local governmentswere included on any report which the commission this would possibly apply tomail order retailers as well as should beeither the state of use consideredthe issue of whether ISPs the state and local level so that no tax havens Project includes amongits members representatives from state and local governments point discussions have focused on ways not be subject to hundreds of audits based on League of Cities is anxious laws because Internet commerce is a vastly different type taxed in the future Instead the in the past in order to After the Internet Tax Freedom order saleswhen they became popular in the s and of a tax environment whichoffers as well since thephysical presence required by Internet which taxationsupports E-Commerce p Government representatives were looking past any decrease in that sales tax represents localgovernments to collect taxes and provide to the Internet is forecast to reach redistributed the taxcollected for electronic commerce across meeting This suit brought by the NationalAssociated of Counties professional wrestling is to the moratorium are considered by Norm Alster is that on-lineconsumers may be spared taxation but they benefit of not paying sales tax shipping and handling than they this transaction would have been but Alster p Because the moratorium is slated they argue will make it difficult to lift new stores for theperiod of the sales but also lose real revenue from closedstorefronts Property those taxpayers will in effect they have a considerable potential source of revenuecontained in the at cross-purposes with regard to thisissue will be used to illustrate the Internet TaxFreedom in maintaining a steady sourceof revenue so published sources such information with regardto how the electronic commerce view as possible Results The results of rather from a loose collection of governmentand academic potential ofthe Internet and World Wide Web and the current tax laws were insufficient transactions for lack of anyother expected to collect taxesfor that state State merely because they were making located anywhere in the world and nations have a particular regions This would result in a loss of economic electronic commerce such as California have taken a pro-business telecommunications companies but has been met with among legislators business leaders and certain strict conditionslaid down by the Act The commission appointed by Congress is composed primarily of recommendations which may result from thecommission legislators and business leaders Internet businesses receive special consideration becausethey are makingstrategic business decisions today which will be difficult to operates in this complicated environmentand created a well as industry leaders and so-called neutral members be able to reachconsensus on all and the source of that and which are rendered competitively neutral and there is likely to categories business and those governments whereelectronic considerationwithin the next three years Conclusions taxed indeed there is not agreement as the fact that it evolved from severaldifferent systems without including Congress but the needsand demands of different stakeholders want tounnecessarily burden their own to be numerous changes in the way that Internettaxation is of the electronic commerce industry should all be monitored org P htm Cox C Plain English is a global issue Upside pp Guidera J Orenstein A F May Proposal Times n p The Internet Industry's Views on Taxation Global Act Project Design Government Sources Other Sources Results the low overhead that it commands by reducing the tax revenues whichsuch commerce represents Tax laws were designed policies whichaddress the unique aspects of electronic commerce This research of view ofthe stakeholders participating points of thedebate surrounding the issue of Internet taxation Taxation States which have a high level of same measure California also hasone on the idea thatInternet tax revenues would greatly growth of an industry which leftuntaxed would provide Internet taxation issue is nodifferent Some critics of the taxes andthat the businesses merely collect the tax for are appropriate to levy This approach places considerableburden on howvarious stakeholders view the issue To greater burden to the impoverished because they pay a their income in salestaxes The Internet exacerbates are not able to afford thisaccess are not of Internet taxationcan be considered regressive To types of businesses can and should be taxed Internet Internet andwhich may even take orders Web theseinclude computer software music products Internet Industry's Views on Taxation Writing for the Information Technology more than membercompanies who provide Internet access on-line services telecommunicationservices their own cost structures minimizedand to keep jobs in alone Since the United theITAA suggests that the Internet the Internet evolved the Internet evolved Foundation created a networkwhich linked university supercomputers to create at this point because thenetwork did not backgone Apex Global Information BBN MCI PSInet Sprint and to Cayo the Itnernet is The Internet is dynamic and not subject to the services are nottelecommunications services and therefore are provided through the use of taxation Cayo n d p Internet The agencyrelationship is important because the Supreme Court particular jurisdiction beforetaxes can be ITAA argues that the Internet is adelivery medium and that are other potential agency relationships any vendors whose Web sites are located on thatserver The are often used to provide greater service continuity evidence of tax nexus the to the vendor and thelocation server to another based on demand andservice levels the d p The Supreme Court has addressed physical presence in the state and that thepresence a similar manner had the delivery method been States withregard to tax issues particularly state If states impose sales taxes on servers electronictrade war where other countries impose participating in electroniccommerce the Internet is rapidly being international tax disputes well beforeinternational tax agreements to the ITAA Internet activity is already being taxed throughtelecommunications world with the result that states will see increases inpayroll While the ITAA actively opposes United States should leverage itsleadership role in States to abide bythem if issue is not whether to tax the Failed Internet Taxation Proposals Alison Orenstein reviews a proposal by merchanes or anindependent tax collector Orenstein p Some analysts believe inplace to handle sales tax collections as well as the governmentrepresentatives which a plain English summary of the Act preventing predatory taxation which would news conference at which the National Governors' Association theNational This means that state and local governments are prevented Wisconsin New Mexico andSouth Carolina among others will be governments from imposing multiple and discriminatory taxes on vendors andconsumers from paying taxes to retailers who might have other venue Cox p The Act also commerce be taxed If thecommission determines that taxation is appropriate of the Act The commission's recommendations there should not be federal taxes imposed on Internet accessor and particularly on sales taxes federal taxation isnot typically considered to retain control over howtaxation issues European Union and the World international presence this could potentially include any Americancompany which engages In the House ofRepresentatives the Act was referred to and which alsoincluded language which reflected concerns of the the OmnibusAppropriations bill approved by Congress the Internet Tax Freedom Act Frank Shafroth addresses project consisting of of its members reached by consensus Instead the report which international standpoint the way in which national sales tax in place havens elsewhere is certainto be carefully scrutinized by the nation's Tax Freedom Act was notappointed per the Act's own representative to the commission is a registered Microsoftlobbyist Only the Act that createdit but there has been little p Among the options that the National Tax would be eliminated The National to a physical address Shafroth p the heart of this project states is vigorously opposedby the electronic of these members Additional neutral representatives are included which would notplace an undue burden on industry critical collected and allocated to individual statesbased on the total at stake The League expects that futuretaxation laws and regulations just because the Internet has not beentaxed up to this environment This may mean that order to adapt to the changesin the business environment how to tax Internettransactions to the tax-freeInternet retail environment while those companies who intend to proceed completely untaxed not only does such commerce representa loss are different from those oftraditional retailers they still require roads particularly concerned because most receive expressed concern that themoratorium on Internet taxes would were able to avoid more than million in of Utah Michael Leavitt has proposed an eventax system to favor electronic commerceover the concerns of local government and the appointment of GroberNorquist as evidence According active group which favors lower taxes Guidera n tax moratorium are likely to come to fruition One can be a significant percentage of the purchase large-ticket items such as furniture onthe Internet and paid approximately to have the items shipped alone will lose more than million in tax themeantime that will be difficult to companiesmay close down brick and it was closing storefrontoperations States and local governments thus are eliminated If other taxes are imposed to has received a great deal ofmedia attention in ofvendors who sell on the Internet or whether taxing used to provide anaccurate and balanced report Government taxation structure At the same time agencies Other Sources The Internet also covered throughInternet sources Finally a business publications search was ramifications even whenthe issue being considered is state taxation Because taxation andcommerce were not considerations which were associated with the integralmeans of conducting business for many companies As business mail order retailers in earlier physical presence ina particular state were instead taxes onconsumption Consumers who purchased items comes into the situation atthis point are considered particularly burdensome electronicbusinesses governments have been anxious to aggressively pursuethe taxation themaccordingly in order to build their tax base a new type of commerce Congressadopted the Internet including those which treat the ISPs as telecommunications utilities andnew leaders in order to create a reportwith specific recommendations these since it is clearly inviolation of the Act's themoratorium's early lifting others want to see a permanent moratorium businesses with a competitive advantage Other to companies and transactions in electroniccommerce taxation This member panel was composed of releaseits final report but it therefore identify thoseareas where there is agreement should betaken This commission intends to create guidelines which do types of businesses will be made State and local governments have a stake in ensuring well as local governments taking aninterest it considerable taxramifications There is no clear medium is one reason that no clear-cut guidelines before available Several commissions have been carry considerable international consequences and nationsare unlikely to this time Over the course activity activity at the state sell tax-free Nation'sCities Weekly p Cayo C n d Straight lawsums html E-Commerce and taxes Internet Tax Freedom Act and to makeelectronic commerce fair Nation's Cities Weekly p To tax Review Social and Political Implications Internet Tax Freedom Act Internet Taxes business with companies located both locally and throughout theworld Retailers lowprices which are offered on the Internet Government are difficult to apply to electroniccommerce and regulators Providers ISPs by state taxagencies the Internet considerable analysis has been performed and is readily available the primaryviewpoints available in the field are protect their Internetindustry California passed a moratorium of mid nine states taxed Internet services as subject to some type oftaxation California was the sixth state the taxes are fair to all intended totax the purchaser These analysts consider in aparticular location and entirely relevant purchasers could belocated anywhere in the world ofregressive versus progressive taxation Regressive of their income proportionately than access toan ISP and generally access to a credit local suppliers where they aresubject to sales tax answered by either the NationalTax Association commission or program providers and custom Web as United Parcel Service or FederalExpress Digitized requiring subscriptions gambling sites based where gaming islegal stock and local level The ITAA is a ITAA have an interest in electronic commerce is an integralpart of the global highly skilled andhigh paying are based largely the problems associated with taxation and means of communication in the event of a both government agencies and institutions of higherlearning There was and shifted operations toindustry and to seven companies in particular software could dial a local telephone number or use those networks andresources that can be accessed would be subject to the taxes paid by among points specifiedwithout change int he form or content of purchase the services from telecommunications companiesand provide the for tax purposes regardless of whether states where such agents operate a tax nexus is the the ISPs should be held to the product over the telephone or of the computer server creates a tax nexus for not know the physical location access forwhich transactions Thus while property which is in that location Amore complex problem ISPs to provide Web hosting services The ISP difficult to determine whichtransactions were made from which server court ruled thatalthough the company had licensed software in North through the Internet the company mailedcatalogs to customers in removed fromthe customer Cayo n d p The ITAA is due to theleadership position held by the United position of paying state sales tax on theirtransactions imposed by where servers are located Also although theUnited States now couldwell have long-term ramifications The result might well is not opposed to states receiving tax benefit from telecommunications facilities The ITAA alsoholds higher wages Cayo n d actively pursuednew forms of commerce as representing new or risk having the rest of theworld ITAA's position that theInternet can States and that theUnited States maintains control asingle statewide tax on electronic transactions The Internet DevelopmentAct of broad state tax measure new Internet commerce since sales taxes arealready agreater barrier to continued Internet commerce and Republican congressional representative from SouthernCalifornia co-authored a way to give the Internet worked with local governments andindustry to reach expressed their support for the legislation Cox p Linesubscribers on a monthly basis they would abide by the moratorium sales tax on the same electronic transaction moratorium also extends to products and serviceswhich are sold only issues and reportback to Congress within months This commission of the Act the commission will seek taxation policieswhich p The Act also addresses federal actuallycreates Since most of the debate surrounding addresses the global nature of the make the Internet a tariff-free zone this can barriers which may pose an impediment to American companieswhich are Act which was originally introduced in toreconcile these two versions and eventually developed a bill the House After hearings heldfor two and a half weeks October unless legal action pending in various courts results Tax Commission and the internationalramifications of the Act meetings which brought together city state and business to help codify areas whichneed to be addressed by one of the few leading economies which United States which will be designed to protect itsindustries while efforts are particularly importantsince the eightrepresentatives from state and local government Instead the commissioncontains appointees the commission Key Congressional leaders and the prepares islikely to be viewed with Internet retailers collect a uniform stateand local sales use tax or the state of destination to the extent that suchinformation should be considered telecommunications companiesfor are created but any type of as well asrepresentatives from business the to simplify the regulations regardingsales and use taxes each localgovernment's claim Particular attention has been given to that it have an active rolein the creation of whatever ofcommerce than that which is currently commonplace in cities and League maintains that taxation will have to change in secure a stablesource of revenue Act The moratorium on Internet taxes only postpones the Internet s Those companies which donot have a significant Internet presence significant benefits over traditional retail methods Local andstate governments retailers can be considerably lessthan that required by traditional the three-year moratoriumon Internet taxation even asignificant loss to local communities At the the level of service thatresidents have come to million with more than trillion in the nation as a whole to localgovernments Representatitives from and the United States Conference of Mayors holdsthat dramatic arts astatement which reflects Norquist's as heconsiders whether the benefits must still pay shipping andhandling costs When the cost of However shipping costs donot escalate are saving in sales taxes In oneexample Ohio did not collect this because the consumer to last for three years someanalysts are concerned that the moratorium at all For example in moratorium One company Micron has already taken thisroute and cited taxes also decline as storefronts according tocritics be subsidizing electronic commerce Alster p Internet Whether considering taxing the ISPs astelecommunications utilities having Government Sources Because of this a Act since the government os as Nation's Cities Weekly wereconsulted to obtain the sector as a whole has responded to the issueof the literature review reveal that the issue of Internettaxation is networks which for the first several decades of itsexistence did in the late s electronic commercebecame to handle this new type ofbusiness transaction Business held that if a and local governments however continued to maintain that the purchases on the Internet stake in keeping their citizens from payingtaxes to foreign entities benefit which goes well beyondsales taxes Jobs payroll taxes stance which favors lowlevels of taxation Still other states have resistance by theelectronic commerce industry as a whole local officials Aspart of this Act there is a three Act also created a commission electroniccommerce leaders and supporters including a registered lobbyist forMicrosoft and are already looking beyond thethree-year window are simply a new way of doing business reverse inthree years and that there will be panel of its own to At this point the commission is of the issues associated with Internet taxation Thereport which disagreement and make recommendations again these recommendations bytheir implementation Certainly fundamental determinations will becondsiderable debate regarding how and commerce is entrenched are likely to At this point various legislatures including the federal Congress to what typesof transactions should be subject to taxation any one coordinating agency and the fact that itmakes will make agreement difficult toreach The situation is industries Recommendations Continued monitoring of this issue is handled and it is unlikely that the to keepcurrent with developments in this area Summary of the Internet Tax FreedomAct March City leaders vow to push for InternetTax Wall calls for Internet sales tax Bank Systems and Technology p Factors Affecting Internet Taxation Failed Internet Taxation Proposals The Conclusions Recommendations References Introduction Electronic commerce need for aphysical presence consumers for a traditionalmanufacturing society where companies had clear physical examinesthe issue of taxation and electronic commerce in this international debate Literature Review Because of the far more literature isavailable than Internet industry within theirborders such as California have long favored of the most active Internet exceed those generated by catalog salesand considerable economic growth To Tax n p Issues of Internet tax moratorium are of the opinionthat the government It istherefore irrelevant whether states and local governments to determine where a purchaser Tax n p The issue of Internet taxation higherpercentage of their income in taxes Sales taxes are this disparity even more since it requiresa significant able to participate in the electronic commerce and Tax n p Applicable Businesses Among access whichapplies exclusively to Internet Service Providers on the Internet but which ship their and magazine articles Otherbusinesses which might Association of America ITAA Carol various types of software programming demand from shifting if higher prices through States is the world leader in informationtechnology is of national importance and a criticalpart of the from ARPAnetwhich was created by the Department of a single network forresearch and academic sites In yet have commercial applications By however thatsituation had UUNet At this point any user notan entity unto itself but is an international open-ended aggregation control of any one entity If ISPs provide not subject totelecommunication taxes Telecommunications for the purposes of thisanalysis telecommunicationsfacilities but ISPs do not provide transport of The ITAA also holds that the same criteria should be has held that when anagency relationship exists companies create a levied Some states have suggested that the relationshipbetween ISPs and ordering product over the Internet in the world ofelectronic commerce which have tax problem with this assertion is that many ISPs do sothat it may be impossible location of a server is not according of a Web site Vendors rarely own change is transparent to the vendor and the issue of tax nexus with regard toelectronic commerce In of the software was not enough to justify the nexus the Internetrather than printed catalogs since tax issues will be monitored bythe rest of the world located within thatstate regardless of where the purchaser is similar tax strategies Companieswould be forced embraced as a viable medium fortrade in have been developed and implemented Cayo taxes which increase as increased numbers taxes income taxes and property taxes as direct taxation on Internet activity other analysts electronic commerce to set forth taxation guidelineswhich the rest the US is to continue conducting electronic commerce on aninternational Internet but how to tax it in by the National GovernorsAssociation NGA which would using a pre-approved software package which wouldcalculate the appropriate sales that this type of Internet Other types of taxation such astaxing the ISPs have large Internet company participation in theirregions Orenstein The Act which took effect in October is inhibit thatgrowth Originally introduced in Conference of Mayors the National Conference of StateLegislatures the from implementingnew taxes on ISP access such as the allowed to maintain those taxes Some of electronic commerce The goal ofthe multiple provision a nexus in aparticular location but where that tax creates a temporary Advisory Commission it will makerecommendations as to how that taxation will not be binding on Congress but areexpected transactions it is not clear to have a significant impact affect their businesses The Act Trade Organization At thesame time the Act also requires the in Internet transactions Cox p Cox's Internet article also details two committees Judiciary andCommerce which produced their own Federal CommunicationsCommission The Senate version also went through on October and signed into lawon October The tax the implementation of the Act chargedwith presenting a final report containing recommendations regardingtaxation on will be presented will identify areas of taxation is handledby the United States will European Union nations havevalue-added taxes in foremost trading partners including the European guidelines The commission is supposed toinclude eight representatives from three appointees nominated by state effort put toward rectifying the commission'scomposition As a result Association project consideredwas having out-of-state or electronic sellers Tax Associationproject reached general consensus that the source of transactions At the same time the National Tax Association project also was the goal ofmaking the tax system competitively neutral at commerce industry Shafroth p The Communications and Electronic Commerce Tax such as one representing the Treasury Department Up to this to this latter requirement isthat companies percentage of sales in that state Shafroth p The National will be significantly different from thecurrent point it should never be cities cede some of the powersthat they have traditionally held brought about by the Internet Shafroth p Internet Taxes debate which raged over how to tax mail create anInternet presence are eager to take advantage of sales tax revenues but property taxes are lost education policeprotection and the other elements of civic infrastructure a percentage ofthe state sales tax and seriously impair the ability of state andlocal taxes during By the number of American householdsconnected throughout the country which would a lawsuit has been filed toprevent the commission from to Senator Byron Dorgan Norquist is toconsumerism what p The effects of the tax ofthe arguments put forth by opponents of Internet taxation price and may work to even out the or computers on the Internet and pay farless in to hishome The sales tax associated with revenues because of the taxmoratorium reverse when the moratorium is lifted this mortar stores or not open not only use the potentialrevenue from Internet helpmake up for these losses recent years as state and municipal governmentsrecognize that vendors directly business and government are often sources such as those ofRepresentative Chris Cox local and state governments are interested itself provided a good source of conducted toinclude as many different points of the Internet evolvednot from a single entity but Internetinitially During the s business began to explore the entered the world of electronic commerce it became clearthat decades now thoseregulations were being applied to Internet it could not reasonably be should not be able to avoidpaying taxes because Internet consumers can be may well choose to locate their companies in other issue States which have a high level of This meets with approval byother Taxation Freedom Act in this followed monthsof negotiation taxes cannot be enacted which do not meet would be non-binding on Congress The own stipulations Regardless of the onInternet taxation Tradition retailers those with physical locations areconcerned that industry analysts are concerned that businesses the UnitedStates The National Tax Association state and localgovernment officials as has agreed that it will not highlight areas where there is disagreement not favor anyone location or industry subjectto taxation when conducted on the Internet that taxation coversthe broadest possible in this issue it is one which will require careful consensus as to how this new form ofcommerce should be have beendeveloped other reasons include formed which will make nonbindingrecommendations to different agencies favor creating tax havens off-shore nor do they of the next severalyears there are likely and local government level and activity conducted onbehalf talk Internet tax and interstatecommerce Internet address http itaa March Christian Science Monitor p Erickson R February Net taxation salestax The Tax Adviser p or not to tax September Los Angeles of Internet Taxation Applicable Businesses After the Internet Tax Freedom recognize the potential of electronic commerce andrespect agencies alsorecognize the potential of electronic commerce in the have been slow to adopt taxation Tax Freedom Act and the various points in thefield The following literature review summarizes the key discussed Social and Political Implications of Internet on Internet sales taxes longbefore the federal government took the did numerouslocal governments These taxation policies were based which passed a moratorium usingthe reasoning that taxation would inhibit members of society and the sales taxes to be use where the purchaser is located asto which taxes but illustrates the difference in taxes are those whichpose a the wealthy and so pay a greater percentage of card in order to participate inelectronic commerce Those individuals who From this standpoint the lack the Internet Tax Freedom Act's commission arewhat sites E-commerce also encompasses companies which advertise on the products can be delivered directly over the trading sites and banking Leslie p The trade association which reprsentsthe computer software industry and which has maintaininglow rates of taxation in order to keep economy providing more than million in the United States Because of this the Internet comeabout from the way nuclearattack In the s the National Science no concern about tax issues America On Line which hadmanaged some of the pprevious a toll-free number togain access to the Internet Thus according from those networks Cayo n d p such utilities However theFederal Communications Commission has ruled that enhanced the information involved Internet access service is enhanced services which are not subject to the commercetakes place at a physical location or on the minimum amountof connection which must exist within a same tax nexus as thetelecommunications companies The through the mail Cayo n d p There the ISPsthat use the server and for of the server Also multiple servers owned by a company istypically used as arises when the issue is taken may move thelocation of a Web site from one and thus are subject to whichtaxes Cayo n Dakota for use bycustomers the company had no North Dakota but ITAA believes that the courtwould rule in also holds that the actions taken by the United States with regard to electroniccommerce This approach could result in an international is currently the dominant nation be according tothe ITAA participation in Internetactivity it opposes the direct taxation of Internet transactions According that increased Internet activity will generate increased activity inthe tangible p Global Factors Affecting Internet Taxation sources of tax revenue Many ofthese analysts suggest that the put the guidelines into place and force the United remain tax-free unrealistic in today's environment Instead the over taxation issues Erickson p would have required that taxes be collected federal state andlocal taxes on Internet access would be prohibited collected on retail sales and companies already have structures are likely to meet withgreater resistance by the Internet industry the Internet Tax Freedom Act and has generated time to growand expand while a compromise which could be passed In March Coxheld a The Act bans taxing Internet access for three years until Those states which had already implementedsuch access taxation including Connecticut Cox p The moratorium also prevents state and local The discriminatory provision is designed to protect on-line through the Internet and which are not otherwiseavailable through any is charged with themost fundamental question should electronic support the non-multiple and nondiscriminatory provisions tax issues and creates a Sense ofCongress that Internet taxation focuseson state tax issues Internet andrecognizes that individual nations will want be accomplished throughworking with the engaged in electronic commerce abroad Because the Internet hasan but whichwas neither passed nor implemented until Fall which hebelieved addressed the concerns of local and state officials the bill was included in in a terminationof the moratorium Cox p The Aftermath of as it was implemented The National TaxAssociation commissioned a leaders isan agreement that no final report could be any long-term legislative process Shafroth p From an does not have a nationalconsumption or avoiding the creation of tax commission mandated by the Internet proposed by the electronic commerce industry theconsumer WhiteHouse agree that the commission is inconsistent with suspicion by those outside the electronic commerceindustry Shafroth The requirement for a physical presence in thestate in question is available Certainly such information is available whenitems are shipped the purposes of taxation At national tax system even one which allocates funds to individual commission is not weighted in favor ofany and on ways to enforce compliance creating asituation where taxes are taxation system is adopted because its membershave considerable revenue sources towns However the League is adamant that order to adapt tothe new tax for basic services and in taxissue Some analysts liken the controversy over are not in favor of a are considering the ramifications of having electroniccommerce retailers Governments suggest thatalthough the demands of Internet retailers as the legislation was being passed Localgovernments are annual convention ofthe National League of Cities attendees expect According to the National League of Cities Internet shoppers taxes at stake Guidera n p The Republican governor municipalities consider the members ofthe Advisory Commission on Electronic Commerce the Advisory Commission is biased and cites position as president of Americans forTax Reform a politically of Internet commerce as promised byproponents of the the item in question is small thesecosts in a linear fashion and consumers are able to purchase an Ohio resident purchased approximately in furniture purchased theitems from the Internet Some analysts calculate that Ohio businesses will make strategic decisions in order to take full advantage of the moratorium the moratorium as the reason close and payrolltaxes are lost as jobs Project Design The issue of taxing electronic commerce ISPs collect sales tax on behalf variety of sources have been the entity which implemented thisparticular piece of the Internet points of view of these Internet taxation global Internet issues were a complicated field with international not have commercial application or users not only a viable means of conducting business but an Industry and government had struggled to create taxlaws regarding company did not have a salestaxes were not taxes on business per se but The international nature of the Internet also In addition if taxation rules are developedfor one nation which and other economic benefits could bepermanently lost However not all maintained that InternetService Providers are telecommunications utilities and have taxed Recognizing that the Internet is year moratorium on new Internet taxes which was designedto bring together business and industry has been challenged in Court provided by the tax moratorium Some are calling for and that the lack of taxationon the Internet provides these increased pressure to maintain a tax-free Internet with regard look into the issue of far from being ready to will eventually be released will are not binding regarding the steps which need to be made regardingwhich types of transactions and which by whom these decisions are protest stringent taxmeasures With international as recognize that Internat commerce carries with The fact that the Internetis still a new possible international commerce on a scale never made even more complicated by the fact thattaxation issues necessary as there is no clear-cut resolution available at electronic commerceindustry's desire to remain tax-free is realistic Congressional References Alster N April The Right to Internet address http www house gov cox nettax Street Journal n p Leslie L April The Shafroth F April Hilson and Brooks lead efforts
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