Internet Tax Freedom Law.

On October 21, 1998, Bill Clinton signed the budget bill--and the Internet Tax Freedom Act that was part of it--into law. The Internet Tax Freedom Act will be in effect from October 1, 1998 until October 21, 2001.[1]. The new law bans federal Net taxation and tarriffs, freezing new state taxes for three years, and created a commission to solve the problem of conflicting state claims.

Provisions of the law include the following.[Gleckman,1998]

Three-year moratorium established on discriminatory and multiple taxation, as well as specific taxes, such as bit, bandwidth, access and on-line services taxes.

"Commission on Internet Commerce" established to propose a new simplified system for collecting state sales and use taxes. The 29 representatives would include state, local, business, consumer, and federal government interests¾ 14 representatives from the state and local leadership groups; the U.S. Secretary of Commerce; the U.S. Secretary of the Treasury; 12 representatives from business/consumer interests; and a Chairperson agreed upon by Congressional leadership. The commission would have two years to report back to Congress with its decisions/recommendations.

Two years after the enactment of the Internet Tax Freedom Law, the Commission would recommend legislation to the President and Congress outlining a uniform system of definitions, simplified tax procedures including a single state rate with proportionate share to locals, and an independent third-party collection system for state sales and use taxes. The Commission would also make permanent the moratorium on taxes on Internet access fees, bit taxes and bandwidth taxes, and make recommendations on prohibiting other taxes.

Congress and the President would be called on to move the recommended legislation forward quickly—45 days for presidential review and requires the bill to reach the floor in 90 legislative days.

Within four years of the passage of the recommended legislation, a simplified, uniform system of electronic commerce will be in place. States can implement the simplified system at any point during this timeframe, allowing them to require remote sellers to collect sales and use taxes. A state that chooses not to implement the simplified system within four years would be deemed to have a sales tax rate on remote commerce equal to zero. Even after the four-year period, states retain the option of adopting the simplified system.

Useful links for Tax Freedom Law
Office of the Press Secretary. The White House. This is a press release about President Clinton's support for Internet tax freedom. Feb 26, 1998. http://www.whitehouse.gov/WH/New/html/19980226-24071.html[back to text]

Reuters. Congress finally reaches a deal: no new Internet Taxes. Oct.16,1998, [On line] http://www.house.gov/chriscox/nettax/ [back to text]

References

[1] The Internet Tax Freedom Act home page.http://www.house.gov/chriscox/nettax This webpage has the complete text of the Tax freedom Law.[back to text]

[Gleckman, Howard] The tax man eyes the Net. Business Week, April 6, 1998. n3572 p.131[back to text]

[Wald, Mathew]. Attention Internet Shoppers: no new taxes. The New York Times. Oct 9, 1998. v147 pC3(N) pC3(L) col. 4 (16 col)[back to text]