Business & Finance Taxes

The Internet Tax Freedom Extension Act of 2007

    1998 Act

    • The original ITFA passed by Congress in 1998 concentrated on the taxation of two potential sources of revenue related to the Internet e-commerce and access services. The act put a three-year moratorium on new state and local taxes regarding Internet access. However, the act did not eliminate existing taxes already imposed by a couple of states. Further, the ITFA prohibited states from instituting new taxes on Internet sales and prohibited states from requiring companies to collect extra taxes on Internet sales to out-of-state customers.

    2007 Act

    • On May 23, 2007, Senator Tom Carper of Delaware and four other co-sponsors introduced an extension of the original ITFA. The bill died in committee. However, an almost identical bill from the House of Representatives did pass the House of Representatives on Oct. 16, 2007. The senate successfully decided to amend the only real difference between Senate and House versions of the bill, namely changing the life span of the extension from four to seven years.

    How It Works?

    • The ITFA prohibits state or local taxes on Internet access. The act also prohibits levying taxes solely related to the Internet. Although the act does allow states to levy sales taxes on Internet purchases if the state levies the same tax on non-Internet purchases. The act specifically prohibits websites that have material construed as harmful to minors from protection under the act. For example, the act excludes pornographic websites.

    Supporters and Opponents

    • Supporters of the ITFA claim that a tax on Internet access would have adverse consequences on the educational and economic impact of private Internet users. Opponents of the legislation, on the other hand, claimed that the nine states that previously levied an Internet access taxes, would lose between $80 and $120 million a year in tax revenues. Additionally, opponents of the legislation argued that nations outranking the U.S. in broadband access, do levy Internet access taxes.

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