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Internet Tax Moratorium: Implications and Developments Brought to you by FMN Online January 2002 (SmartPros) Electronic commerce taxation, with the extension of the Internet Tax Freedom Act, remains a controversial and troublesome topic for the accounting industry. Despite the controversy, states have just two years to develop a plan for e-commerce taxation and "work out the issue." Arthur Rosen, a partner in the New York City office of McDermott, Will & Emery, joined FMN Online to discuss new developments and implications of the extension. President Bush recently signed into law a two-year extension of the Internet Tax Moratorium, which will expire Nov. 1, 2003. Rosen, whose practice focuses on planning for state and local tax matters, told FMN Online that the moratorium accomplished two things: "One, it prevents any states from posing any new taxes such as sales taxes on access charges, which are charges people pay to access the Internet. Two, it says that no state can assert that a company having a Web site that's merely resident on a computer in a state is enough to give state tax jurisdiction for that out-of-state company."
Rosen explained that the original act, passed in 1998, "merely prevents multiple or discriminatory taxation on interstate commerce. There was, probably, very little of that going on anyway when the first act was passed."
Rosen guesses this is probably the last time we'll see a moratorium, which means those concerned about Internet taxation -- including the business community and state and local governments -- have just two years to take a hard look at the issue and make sales and use taxes simple and uniform.
"It's not as easy as it sounds because companies are offering bundled charges for Internet access, for telecommunications, for long distance, for local, for Internet access plus content delivery," said Rosen. "States have two years to simplify and make their laws uniform."
One development toward this goal is the Streamlined Sales Tax Project, or SSTP, that is composed of 40 states with different levels of activity and which is being sponsored by several government organizations. SSTP's purpose is to draft a model sales tax act. States would have the right to impose tax on any item they want or exempt any item they want through the democratic process, which is through their elected officials, but they would have to utilize defined terms when they did so, Rosen explained.
One recommendation Rosen passed onto corporate financial executives: get involved in the sales and use tax discussions and the STTP. "Every American business is going to be impacted by it," he noted.
Internet Tax Moratorium, a multimedia CPE program now available with FMN Online and FMN Video subscriptions, covers the following topics in more depth:
For more information about FMN subscriptions and how to earn CPE credits, visit SmartPros Knowledge.
Letters to the Editor: editor@smartpros.com
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