Internet Taxation: Issues and Legislation (CRS Report for Congress)
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| Release Date |
Revised July 7, 2008 |
| Report Number |
RL33261 |
| Report Type |
Report |
| Authors |
Steven Maguire and Nonna A. Noto, Government and Finance Division |
| Source Agency |
Congressional Research Service |
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Summary:
Congress is involved in issues of state and local taxation of Internet transactionsbecause commerce conducted by parties in different states over the Internet fallsunder the Commerce Clause of the Constitution. Currently, the "Internet TaxMoratorium" prohibits (1) new taxes on Internet access services, and (2) multiple ordiscriminatory taxes on Internet commerce. The moratorium was created by theInternet Tax Freedom Act (ITFA) of 1998 (112 Stat. 2681), and has been extendedtwice. The original moratorium expired on October 21, 2001. Congress extendedthe moratorium through November 1, 2003, with P.L. 107-75. The moratorium wasextended for an additional four years, through November 1, 2007, by P.L. 108-435.Taxes on Internet access that were in place before October 1, 1998, were protectedby a grandfather clause.In the 109th Congress, H.R. 1684 and H.R. 1685 would make the moratoriumpermanent by repealing the moratorium's sunset date. H.R. 1685 would also strikethe grandfather provision for digital subscriber line (DSL) taxes. The grandfatherprovision was added in the most recent extension of the ITFA (P.L. 108-435). In theSenate, S. 849 also would repeal the moratorium's sunset; it is similar, though notidentical, to H.R. 1684.An issue previously raised in connection with the Internet tax moratoriumconcerns states streamlining their sales taxes in order to gain remote tax collectionauthority. In the 109th Congress, S. 2152 and S. 2153 would grant states whichcomply with the Streamlined Sales and Use Tax Agreement (a multistate compact)the authority to require remote sellers to collect state and local taxes on interstatesales. Another related issue is whether and how to have Congress set the nexusstandards under which a state is entitled to impose a business activity tax (BAT, e.g.,corporate net income tax, franchise tax, business and occupation tax, gross receiptstax) on a company located outside the state, but with some business activities in thestate. In the 109th Congress, H.R. 1956 would establish a physical presence standardfor business activity taxes. For more on state corporate income taxes, see CRSReport RL32297, State Corporate Income Taxes: A Description and Analysis, bySteven Maguire.
