Academic journal article Journal of Accountancy

The Final Frontier

Academic journal article Journal of Accountancy

The Final Frontier

Article excerpt


* THE INTERNET TAX FREEDOM ACT (ITFA) ENACTED IN 1998, puts a three-year moratorium on the imposition of new taxes on Internet access and electronic commerce. It also creates a 19-member commission to recommend how--and if--remote commerce, including Web sales, should be taxed.

* ONE PROPOSAL UNDER CONSIDERATION WOULD declare the Internet a permanent tax-free zone. State governments, which depend heavily on sales-tax revenue, see such a proposal as a threat to their sovereignty. Others are concerned such a change would give Internet sellers an advantage over conventional merchants.

* ANOTHER SOLUTION IS TO EXTEND CURRENT sales tax concepts to Internet transactions. Taxes would be levied based on the destination of a sale--usually the state where the buyer is located. To make this easier, the National Tax Association has reached an agreement that would result in each state charging a single tax rate on all transactions.

* A THIRD POSSIBLE OUTCOME IS TO FORMULATE a new method of taxation that recognizes the unique nature of remote commerce. One such proposal is a seller-based tax system, that grants the seller's state the sole right to tax a transaction. While this is consistent with European methods, it differs dramatically from the way transactions are currently taxed.

* IT IS UNLIKELY THE ITFA COMMISSION WILL REACH a decision within the required 18-month timetable. It does seem likely, however, that the days of untaxed Internet commerce are numbered.

How should electronic commerce be taxed?

Who--if anyone--gets to tax transactions that take place in cyberspace? The question becomes more pressing as,, and similar Web sites become a more popular way to buy everything from books and used guitars to stocks and bonds. When President Clinton signed the Internet Tax Freedom Act (ITFA) into law in October 1998, the act's three-year moratorium on Internet taxation was hailed as a victory for consumers and electronic commerce. Passage of the act, however, does not mark the death of Internet taxation. Rather, it is only the beginning of a long debate to determine how to tax electronic commerce, a debate that could last well into the new millennium. Businesses--and the CPAs who work for or advise them--should understand clearly what the ITFA does and does not do, so they can begin to gauge the impact Internet taxation could have on their operations.


The ITFA has declared a hiatus on the imposition of new taxes on Internet access and commerce while a special commission examines the issue. Its work could--within the next several years--lead to a federal law granting states the right to tax Internet commerce.

The ITFA has two major provisions.

* Tax moratorium. The act imposes a three-year moratorium on taxes on Internet access (unless the tax was generally imposed and actually enforced prior to October 1, 1998) and multiple or discriminatory taxes on electronic commerce.

* Electronic commerce advisory commission. The act creates a 19-member advisory commission on electronic commerce (see the exhibit on page 35). Members include the secretaries of Commerce and Treasury, the U.S. trade representative and representatives from state and local governments and the electronic commerce industry.

ITFA Commission Members

Dean Andal, chairman, California Board of Equalization

Michael Armstrong, chairman and CEO, AT&T

Charlene Barshefsky, U.S. Trade Representative

Larry Carter, president, Cisco

William Daley, Commerce Secretary

James Gilmore, governor of Virginia

Paul Harris, delegate, Virginia

Delna Jones, county commissioner, Washington County, Oregon

Ron Kirk, mayor, Dallas

Mike Leavitt, governor of Utah

Gary Locke, governor of Wisconsin

Grover Norquist, president, Americans for Tax Reform

Robert Pittman, president and CEO, America Online

Richard Parsons, president, Time Warner, Inc. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.