Back to TaxationComplexity and confusion are likely to result as individual states try to determine how to tax Web-based electronic commerce. Industry experts charge that rules impacting other commerce arenas do not apply to the Internet. The Internet business world is changing rapidly, so it is impossible to apply tax policy that is not altered as quickly.
Texas, for example, has defined different segments of electronic commerce, so sales tax is collected on everything from services for creating Web pages to downloading software. In contrast, California does not collect sales tax for downloading software unless a backup copy of the software is sent by mail.
Every state has a different definition of electronic commerce and buyers and vendors have difficulty understanding the laws.
At present, companies trading on the Internet are not liable for sales tax, which gives them a significant competitive advantage over conventional retailers. Because of this present situation, state and local authorties are deprived of sales tax revenues, so they have been putting pressure on the governmet to introduce taxes for the Internet merchants.[1]
The recent pass of the Internet Tax Freedom Act as Law, which calls for a moratorium on new net taxes until the year 2003 created mixed views among states. [Forbes, 1998] On line sales are projected to climb to as much as $200 billion by the year 2002. With the banning of the states from collecting taxes (which average 5 percent) on such transactions, they could lose a projected $10 billion in potential income.
Many state and local governments are moving to apply utility taxes to Internet usage, adding about 15 percent to the average Internet service provider bill. Considerable general government funding comes from excise taxes on utilities, and much of it is used to subsidize interest groups such as the rural, the handicapped and those claiming low income.
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[Forbes, Steve] Moratorium on Web taxes urged. PC Week, May 18, 1998, v15 n20 p91(1) [back to text]