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Internet Tax Freedom Act Extension

1998 Act

The original ITFA focused on two revenue-generating areas: access services and e-commerce. The act placed a three-year moratorium on new state and local taxes on Internet access, according to the "Silicon Valley Business Journal," leaving in place taxes already being charged in a handful of states. It also prohibited states from enacting specific taxes on Internet sales and from requiring companies to collect sales taxes on Internet sales made to out-of-state customers.

Earlier Extensions

Congress, with the backing of then-President George W. Bush, in 2001 extended the ITFA for three years. A further three-year extension, contained in legislation called the Internet Tax Nondiscrimination Act, was enacted in 2004, adding DSL to the definition of Internet access providers, according to the Center on Budget and Policy Priorities.

2007 Extension

After attempts to make the ITFA permanent failed, in 2007 Congress and the president extended the act until Nov. 1, 2014. One new clause in the law allowed VoIP--Voice over Internet Protocol--and similar services to be taxed by states and localities, according to the nonprofit educational organization Cybertelecom. Another change specified that general business taxes enacted by states did indeed apply to Internet access providers.

Key Misconception

Many online shoppers believe the restrictions put in place by the ITFA protect them from having to pay sales tax on purchases from out-of-state-based retailers. In fact, by law, those making such purchases are required to pay their own state's sales tax rate directly to the state. But as Cnet.com pointed, few consumers voluntarily make these required payments.

Ramifications

According to the Information Technology & Innovation Foundation, the ITFA and its extensions have contributed to economic growth by keeping Internet access affordable. The Center on Budget and Policy Priorities, however, argues the act deprives states and localities of vital revenue. And the Retail Industry Leaders Association says the limits on requiring online retailers to collect sales taxes puts brick-and-mortar retailers--who must always collect the taxes--at a disadvantage.

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