Underlying transmission services provided by telecommunications carriers are already subjected to specific taxes by many states. Internet and online services fall within the Federal Communications Commissions definition of enhanced services, rather than within that of basic telecommunications services. The states will often be unable to determine the locations of sellers over the Internet and proprietary subscriber networks. In fact, the nature of the Internet and online technology makes the physical location of the seller irrelevant to the sellers business operations. Such a seller may be able to operate in a states market effectively from far beyond the states borders, where it may be immune to the states taxing jurisdiction.
Any government seeking to require tax collection by such a seller faces a formidable challenge.
Only through close cooperation between the Industry and the policymakers can there be hope of designing and implementing an effective tax system that takes into account the unique nature of the Industry. The Industry is concerned that, if the states move too quickly, they will risk creating, rather than resolving, major problems. Since relatively small amounts of tax are currently at stake, there is time in which to work together to develop a fair and efficient tax system. Such a system should ensure uniform application and consistent administration of any tax while protecting the development and expansion of the Industry. A deliberate and cooperative approach will avoid the dangers that lurk in precipitate and uninformed action on the part of the states, dangers that could hinder the development of the Industry.