Within the first two months of 2013, identical bills in the U.S. House and Senate have been introduced that would provide a federal framework in which states could opt to require remote sellers to collect state sales taxes. A bill has been introduced in the U.S. Senate to permanently extend the moratorium on taxation of Internet access, the Florida legislature passed a law to tax Internet sales from out-of-state sellers, and the online retail giant, Amazon, has agreed to collect a 6.35 percent sales tax from consumers in Connecticut. Are these decisions inconsistent or unrelated to one another? Why should Amazon pay taxes in Connecticut and not in, say, Oklahoma? There is no shortage of interest among states and localities in new or better-enforced sources of revenue from the Internet, yet in the current legal environment of Internet taxes, there is confusion over the most appropriate policy options moving forward.
This guide explains the state of current law and how policymakers should approach taxing online, digital activity. It focuses on four particular areas: the Internet tax moratorium, multiple and discriminatory taxes of digital goods, discriminatory taxes on wireless services, and the collection of sales taxes for online purchases of products. Too often these issues are confused, or even worse, lumped together by the bumper-sticker debate between “Don’t Tax the Net” and “Level the Tax Playing Field,” but in fact these issues are distinct and deserve distinct policy responses. ITIF believes Congress should address each of these four areas through proposed legislation.
The report focuses on four pieces of federal legislation and recommends:
- An Extension of the Internet Tax Freedom Act, which prohibits taxing of Internet access, multiple taxes on Inter