Internet taxation issues remain unanswered.

• Author: Huddleson, Joe

The hoopla generated by the Internet Tax Freedom Act seems to have dissipated somewhat. The hope had been that the Advisory Commission on Electronic Commerce (representing government and industry) would reach a broad consensus on the taxation of Internet activity and provide concrete recommendations to Congress. This did not happen.

The Commission did not have the two-thirds vote required for a formal recommendation. It could, therefore, only agree on (1) extending the current moratorium on Internet access charges, (2) requiring clarification of what will create seller nexus, (3) simplifying sales tax and (4) eliminating the 3% Federal excise tax on telecommunications.

The (now three-year old) question of how to handle tax on sales over the Internet remains unanswered. Retailers with Internet sites only (clicks) are charging sales tax only when an item is shipped to their home state or a state in which they have a warehouse or other property. Retailers with both Internet and actual stores ("bricks and clicks" or "clicks and mortar") are busy creating separate companies for their Internet sales activities and establishing firewalls between the two types of stores. This allows companies to charge sales tax only on their Internet sales in the state in which the Internet company is located (or a state in which the Internet company has a warehouse or other property).

The backlash against these strategies comes from two sources. The first is the "Main Street" community--those retailers who have small stores in one state and who, because they must charge sales tax on all their sales, are less...