Sunday, September 16, 2007

A note about the Internet Tax Freedom Act

Recently there have been many television ads encouraging consumers to contact their senators and representatives to extend the ban on Internet taxes. As with many advocacy ads, they appeal to emotion, warning that Internet users could be paying taxes to home states every time they surfed if the ban were not extended.

The concept is a bit misleading. S. 1453 is “A Bill to extend the moratorium on Internet access and discriminatory taxes on Interstate commerce imposed by the Internet Tax Freedom Act.” This is called the “ITFA Extension Act of 2007.” Here is a pdf copy online.

The Internet Tax Freedom Act of 1998 expires Nov. 1, 2007. While it prohibited taxes on Internet ISP services, it did not by itself prohibit taxes on Internet commerce. In practice, many sellers avoid sales taxes on Internet commerce by setting up shell companies for Internet sales that do not have inventory in the same states. In some states consumers are responsible for paying these taxes as “use taxes” which in practice are difficult for states to collect. Some vendors do charge and collect sales taxes on internet commerce. When I had my own “High Productivity Publishing” (before I started selling my books through a cooperative publisher) in Minnesota, I did collect sales taxes and paid in a manner in accordance with state law, although the actual amounts were small. and Nolo Law have a good writeup on how taxes on Internet sales of goods works, here.

While this is not part of network neutrality legislation, it certainly fits into the “spirit” of the debate.

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