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Tax Issues

Similar to jurisdictional issues, tax implications relating to Internet commerce are fraught with uncertainty. The dissolution of meaningful geographical boundaries raises questions as to where a taxable event occurs in a commercial transaction over the Internet. While it is difficult to determine with certainty how tax implications will be resolved, it is important for a company to be familiar with the pertinent issues.

Federal

In Congress, a bill entitled the Internet Tax Freedom Act was introduced in 1997. The Act set up a national three-year moratorium that prohibits the 30,000 U.S. tax jurisdictions from passing unfair sanctions on Net access, services, and sales, and grandfathered tax codes in effect before October 1, 1998.The Treasury Department published a Discussion Paper, which was a fact-gathering effort designed to resolve the uncertainty about taxation of online commerce. Interestingly, the Treasury Depart ment has advocated a principle of neutrality that rejects the need for new or additional taxes on electronic transactions. It recommends that all income be treated equally, regardless of the means by which it entered commerce. As authority for its position, the Treasury Depart ment notes that foreign businesses are not taxed for soliciting and filling orders from U.S. customers.


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