Electronic commerce is rapidly becoming a common way for individuals to transact business with companies located both locally and throughout the world. Retailers recognize the potential of electronic commerce and respect the low overhead that it commands (by reducing the need for a physical presence); consumers respond to the convenience and the often low prices which are offered on the Internet. Government agencies also recognize the potential of electronic commerce in the tax revenues which such commerce represents. Tax laws were designed for a traditional manufacturing society where companies had clear physical presence in a particular location; these laws are difficult to apply to electronic commerce, and regulators have been slow to adopt taxation policies which address the unique aspects of electronic commerce. This research examines the issue of taxation and electronic commerce with particular attention given to the taxation of Internet Service Providers (ISPs) by state tax agencies, the Internet Tax Freedom Act, and the various points of view of the stakeholders participating in this international debate.
Because of the import of this issue to business and local government, considerable analysis has been performed and is readily available in the field. The following literature review summarizes the key points of the debate surrounding the issue of Internet taxation; far more literature is available than can be included in this brief survey, but the primary viewpoints available in the field are discussed.
Social and Political Implications of Internet Taxation
States which have a high level of Internet industry within their borders, such as California, have long favored generous taxation rules regarding Internet transactions as a way to protect their Internet industry. California passed a moratorium on Internet sales taxes long before the federal government took the same measure; California also has one of the most...