1 - 1st Explore sites to gain an overview Internet taxation is a highly controversial topic that is assuming the political spotlight as states vie to attract Internet Commerce business. There are divergent views on Internet taxation ranging from the libertarian Cyberspace community who fear taxes will stifle e-Commerce to small businesses disadvantaged by the Internet's illusion of tax freedom. Indeed, state and local governments are apprehensive about the Internet commerce growth eroding the tax base. The breadth of these challenges is described in an overview by the National Association of State Budget Officers . The primary issues in state imposition of sales or use taxes is discussed in a document found on the IBM Public Affairs site devoted to Taxation of the Internet .
Most states rely on sales taxes for substantial portions of their budgets.
States legitimately fear major losses in their tax base if taxes on Internet sales remain uncollected. The Internet tax controversy is a subset of the fundamental debate over the sufficiency of connection a governmental unit must have to regulate activity. This is the classic issue of jurisdiction as governed by Constitutional principles. Federal, state and local income taxes paid by product makers and service providers with nearly any connection to Internet use. The ITFA was passed by Congress in late 1998 to place a temporary moratorium on new application of existing taxes OR to the imposition of any NEW taxes on the Internet.