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State Sales Taxation of Internet Transactions , Record No.: RS21537 1 (March 1, 2004)

handle is hein.tera/crstax0332 and id is 1 raw text is: Order Code RS21537 Updated March 1, 2004 CRS Report for Congress Received through the CRS Web State Sales Taxation of Internet Transactions John R. Luckey Legislative Attorney American Law Division Summary This report examines State taxation of Internet transactions as well as efforts to achieve uniform State sales and use tax treatment. There are at least two common misconceptions in the area of State taxation of Internet transactions. Contrary to popular belief, (1) States do have the power to impose a sales tax on in-state sales that are accomplished via the Internet, even after the enactment of the Internet Tax Freedom Act in 1998; and (2) States do have the power to tax transactions of their own residents where the seller is located outside of the State and has no real connection with the State. The Internet Tax Freedom Act placed a three-year moratorium only on imposition of new taxes on Internet access services (existing taxes on access services were grandfathered) or any multiple or discriminatory taxes on electronic commerce by State or local governments, not on application of a general sales tax to such transactions. The Internet Tax Nondiscrimination Act of 2001 extended this moratorium through November 1, 2003. The moratorium has expired. In the 108th Congress, several bills have been introduced that would affect the moratorium: H.R. 49, H.R. 1481, S. 52 , S. 150 and most recently S. 2084. On September 17, 2003, the House passed H.R. 49. If enacted, this measure would render the moratorium on access taxes permanent, expand the definition of Internet access, and remove the grandfather protection which had been granted to existing access taxes by the 1998 Act. The Senate, after some consideration in early November of 2003, did not approve an extension, temporary or permanent, of the moratorium. In addition to Congress, other stakeholders are involved in Internet taxation issues. The Streamlined Sales Tax Project, which claims the involvement of 39 States and the District of Columbia, aims to achieve a more uniform sales and use tax scheme. While the Project's aim does not specifically pertain to Internet access taxes, it is inextricably related and has been widely discussed. H.R. 3184 and S. 1736 would authorize participating States to require sellers to collect sales and use taxes based upon the buyer's home State rates. This report examines State taxation of Internet transactions, including certain misconceptions surrounding such taxation, as well as efforts to achieve uniform State sales and use tax treatment. It is important to recognize the distinction between Internet Congressional Research Service ** The Library of Congress

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