September 1999

Electronic Commerce Taxation: The Debate Rages Online

By Paul Sinegal

As the old adage says, there are few things more certain in life than death and taxes. Well, the modern day list may just include a third certainty--the Internet. The Internet has revolutionized the way we conduct business, communicate, socialize, even the way we shop. As the Internet becomes more and more accessible to the average consumer, online commerce is quickly becoming a prevalent vehicle for purchasing books, recorded music, clothes, computers--the list goes on. No wonder the federal government is studying electronic commerce taxation. An ominous cloud in the shape of Uncle Sam now looms above online businesses and consumers, leaving many scrambling for a collective umbrella.

For the time being, that umbrella is the Internet Tax Freedom Act. The ITFA, enacted into law in October 1998, imposes a moratorium on Internet taxation until October 2001. Despite this three-year moratorium, the debate about Internet taxation remains in full force. Where else do you find the most comprehensive information about this issue than on the Internet itself?

There is a myriad of websites devoted exclusively or in part to the subject of e-commerce taxation, but perhaps the most "official" site belongs to the Advisory Commission on Electronic Commerce, a 19-member commission appointed by Congress in October 1998 as part of the ITFA. The commission has the task of studying the potential impact of federal, state, local, and international taxation on Internet transactions, with a report due to Congress by April 21, 2000. Many in the online community expect the commission's recommendations to profoundly affect what course Congress will take on e-commerce taxation.

Because the commission is essentially the official voice of Internet taxation, its website (www.cns.state.va.us/e_commerce/index.htm) is worth a visit for the latest information. The site contains the full text of the ITFA; frequently asked questions and other background; links to related sites; news releases; and a section on commission meetings, including downloadable presentations and meeting transcripts. Since the commission only has held two meeting to date, the site does not yet provide insight into where its recommendations ultimately will lead.

There are dozens of other websites that address Internet taxation including the following:

The Internet Tax Freedom Act

www.house.gov/cox/nettax

Part of the website for U.S. Representative Christopher Cox (R-CA), the ITFA's co-sponsor, this site has an anti-taxation slant but also provides information on state, local, and foreign Internet taxation. In addition, the site includes a "plain English" summary and a section-by-section analysis of the law.

The CyberTax Channel

www.vertexinc.com/taxcybrary20/CyberTax_Channel/taxchannel_70.html

Part of the website of Vertex, a publisher of tax software and other materials, the CyberTax Channel focuses solely on Internet taxation and features state-by-state summaries, a table of current tax laws and pending legislation, questions and answers, links to related sites, and a glossary of terms.

U.S. Government Electronic Commerce Policy

www.ecommerce.gov

Maintained by the U.S. Department of Commerce's secretariat for electronic commerce, this is a comprehensive site for government information on electronic commerce. It includes relevant links and position reports of just about every branch and division of government including the Justice Department, White House, State Department, Federal Trade Commission, Federal Communications Commission, etc.

The National Governors' Association Internet Policy

www.nga.org/Internet/Index.htm

This association supports Internet taxation legislation that is fair to small local businesses which, it argues, may be at a significant disadvantage under current proposals. The site includes news releases, proposals, summaries of legislation, correspondence with federal legislative leaders, and related material.

Internet Tax Fairness Coalition

www.nettaxfairness.org

Several large Internet-related corporations, including America Online and Microsoft, are members of this coalition. Its website includes information on the group and general background on e-commerce issues but lacks the myriad of links and details of the sites listed above.

In addition to the above websites, hundreds of articles have been published online and in print media that address Internet taxation. See the Society's website, www.nysscpa.org, for more resources, and watch the site and future issues of The Trusted Professional for updates. *