The Internet Tax Solution

A heated debate is once again under way in Congress over the tax treatment of electronic commerce and the Internet Tax Freedom Act of 1997 (ITFA). The ITFA imposed a moratorium on state and local taxes on Internet access and banned “multi-
ple or discriminatory” taxes on electronic commerce. That moratorium was intended to last only three years but was extended by Congress in 2001 for another two years. It will lapse on November 1, 2003.
 
The ITFA has been a remarkably misunderstood or misinterpreted statute and has very little to do with what really lies at the heart of this debate—the effort by state and local governments to collect sales and use taxes on remote vendors in interstate commerce (mail order, catalog, and e-commerce companies). ...

Merely extending sales tax collection responsibilities to electronic commerce—which constitutes less than 2 percent of all retail activity in the United States—will not solve the fiscal crisis that state and local governments have created through their profligate spending habits.