Taxing the Internet

From dKosopedia

Categories: Taxes | Internet

There are basically two separate issues that fall under the rubric of taxing the Internet. One is the taxation of sales made via the internet, and the other concerns "bit taxes" on internet access or useage itself.

Sales Tax Issues

Mail Order and internet sellers without an office in the state where the customer lives, under a bright line rules established by the U.S. Supreme Court, may not be required to collect sales taxes (i.e. taxes on gross sales imposed on sellers in state) for the state where the customer lives. This ruling was based in part on the administrative difficulty faced by a seller who would otherwise have to be familiar with thousands of different sales taxes imposed by state and local governments in every jurisdiction in the United States. This sales tax exemption is the main way that mail order and internet seller remain competitive vis-a-vis brick and mortar shopfront sellers to whom buyers do not have to pay shipping and handling charges.

States are free to impose upon buyers, a "use tax" on purchases from out of state sellers, but, aside from purchases by major corporate buyers, this is virtually impossible to enforce.

Congress has concerned, but not yet enacted, legislation in the form of a compact with states that have sales taxes, that would require mail order and internet sellers to cooperate with state sales and use tax collection authorities, but has conditioned such cooperation on the adoption of uniform definitions of which sales would be taxable, so that only a determination of rate that applies in the state where the customer lives would be required of the seller.

Bit Taxes

A variety of governments have considered imposing so called "bit taxes". For example, a bit tax might impose a charge of 1 cent per e-mail sent. This could raise significant revenue and might also discourage activities like spamming. But, supporters of the internet have been concerned that bit taxes, especially when imposed by myriad jurisdictions, could fatally impede technological development in this rapidly evolving area. For this reason, a federal prohibition on imposing bit taxes has been established on a temporary basis.