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Internet Tax Freedom Act

The Congress of United States approved a bill that prohibited any local, state, or federal government from receiving any taxes or attempting to collect taxes from the use or any activity on the Internet for the time being. This includes any license, income, and/or sales taxes. This bill was introduced on March 13th, 1997. The bill was enacted on Oct 1st, 1998 and will be effective for the next three years. This legislation was introduced amid fears that the many local and state authorities were considering taxing the use of the internet either by placing taxes on computer services that people utilize like America Online or Prodigy or by placing tariffs on interstate commerce that takes place over the internet.

The house subcommittees and the senate committees had come up with the plan to put a moratorium on this taxation, which as recently as March 21st, 2000 has been asked to be extended to calendar year 2006 in a bill introduced by senator McCain in front of the Senate committee on Commerce, Science, and Transportation. For many years the Congress has been deliberating over this issues with appeals from various local and state governments to repeal this bill. An earlier amendment to the bill in the year 1999 had even asked to make the moratorium permanent.

Under the act that was passed in 1998 following was prohibited:

  • Taxes on internet access, unless such tax was generally imposed and actually enforced prior to October 1, 1998
  • Multiple or discriminatory taxes on electronic commerce. Provides an exception from such moratorium for
    • Persons selling or transferring, by means of the World Wide Web, material that is harmful to minors, unless such a person requires the use of an adult personal identification number or other procedures as the Federal Communications Commission may prescribe to restrict access to such material by persons under 17 years of age.
    • An Internet access provider unless such provider offers its customer screening software designed to permit the customer to limit access to Internet material that is harmful to minors.

Congress also wanted the President to seek support for a global electronic commerce society that would be free of any tariffs or regulations that would come in the way of growth and expansion of the Internet as the tool of the future. Sec. 102 of the Internet tax freedom act also established an Advisory committee on electronic commerce that would analyze the data that it would collect from "local, state, federal, and international taxation and tariff treatment of transactions that result from Internet activity or use." Plus all the sales that result from it. Basically Congress wants to come up with a plan to deal with the Internet commerce in such a way that it would be beneficial to all Americans.