Robert L. Ehrlich, Jr. internet issues memo, April 26, 2000

Memo Г? С' То: File From: RLE Date: 4/26/00 Subject: Internet Issues Background information 4/26/00 1. Internet Taxes 1 A. Background • Until recently, most elected officials refrained from forming an opinion on any kind of Internet taxes in order to encourage the Internet’s growth and development. With the growth and popularity of the Internet, many governors and state legislators are now reexamining the issue of Internet taxation. The tax issue arises in two contexts: access fees and sales taxes. Access fees would be charges on a consumer’s Internet bill similar to telephone charges. State legislators and governors view access fees as another way to raise revenue and fund Internet programs. • Sales taxes are a concern due to the rapid increase in electronic commerce. States are monitoring any trends that may point to a decrease in sales tax collections. Due to the ongoing economic expansion, most states are flush with surplus dollars and are hard pressed to make the case they are losing sales tax dollars to the Internet. B. Legislation • In 1 997, Congress passed the Internet Tax Freedom Act which imposes a 3-year moratorium on the ability of state and local governments to levy certain taxes on the Internet. Specifically, the Act prohibits taxes on Internet access, unless such tax was generally imposed and actually enforced prior to October 1 , 1 998. It also