Internet Taxes - Conceptual Issues

Conceptual Issues

There are many conceptual issues involved in the determination of which of several jurisdictions have the authority to tax the Internet, or transactions on it, in some way. Internet taxation has essentially been banned in the United States since 1998, except for those jurisdictions that were grandfathered under existing federal law. Most of which involves Internet access taxes, franchise taxes, and telecommunications taxes, although a smattering of other taxes currently exist.

Beyond the questions of direct taxation of Internet access through levies such as bit taxes, bandwidth taxes, email taxes, and franchise fees, a related issue concerns the imposition of sales taxes on Internet sales of goods and services. This taxation is not prohibited by federal statute, but rather by a series of U.S. Supreme Court decisions including Quill Corp. v. North Dakota (1992). Those cases held that state taxation of in-state sales by vendors with no significant physical presence in the state violates the Commerce Clause of the U.S. Constitution. Because of this constitutional prohibition on collecting sales tax from so-called "remote" sales on the Internet, the issue of local jurisdictions taxing goods and services purchased from out of state by their residents using the Internet has not yet raised the conceptual questions discussed below. See tax-free shopping.