Internet Tax Freedom Act does NOT ban sales tax

Internet Tax Freedom Act Amendments Act of 2007

Internet Tax Freedom Act Amendments Act of 2007 (110th congress - H.R. 3678)

Although we see less of this now than we used to, there is still some confusion over the Internet Tax Freedom Act and how it affects sales tax on online purchases.

The truth is, it doesn’t. The Internet Tax Freedom Act (ITFA) was passed in 1998 and renewed/extended in 2007 (it’s now good through 2014) to ban taxes on internet access and internet-only goods or services, such as email and bandwidth. But ITFA expressly did not ban sales tax on online purchases (though it did say that sales tax on online goods must have the same rate as the same goods purchased offline).

As the Main Street Fairness Act has been getting a lot of press attention lately, we’ve seen a few articles, such as this one, that have mistakenly attributed the current rules on online sales tax (including the role of nexus) to the Internet Tax Freedom Act. So consider this an addition to our earlier list of mischaracterizations about online sales tax: The Internet Tax Freedom Act does not ban sales tax on online purchases.

2 Responses to Internet Tax Freedom Act does NOT ban sales tax

  1. I own an e-commerce store and I think the whole concept of an internet sales tax is ridiculous. Brick and mortar businesses say its needed to “even the playing field”. In reality the playing field is already even, with the addition of a sales tax it tilts to the brick and mortar stores favor. The reason…shipping costs. The money that on line shoppers save in sales taxes, they end up spending on shipping. Now they have to pay both online sales tax and shipping cost. This is a clear advantage for brick and mortar stores. I’m glad most shoppers don’t know about internet taxes or refuse to pay them, however I worry that at some point the Gov. may try to force e-commerce stores to collect it for them.

    • FedTax says:

      Thanks for your comment. Of course, since sales tax is already due on online purchases, no one’s suggesting an “addition of a sales tax.” The only question is whether or not online retailers should collect sales tax or the consumer should have to calculate and pay the tax due on their own.

      But we’ve certainly seen the argument about shipping costs elsewhere, and the fact that they’ll need to pay for shipping is definitely something that shoppers should keep in mind when they’re deciding whether to shop online or in local stores.

      But shipping costs have nothing to do with sales tax. Shipping costs are a part of shopping online, while sales tax is part of shopping, period. Bricks-and-mortar shopping has its advantages — you can see and touch the merchandise, you don’t have to wait to receive it, you don’t have to pay for shipping — and its disadvantages — the selection is smaller, it’s more difficult to comparison-shop, you have to face traffic and crowds to make your purchases. Likewise, online shopping has its advantages — there’s a much wider selection, you can shop from home in your pajamas, comparison-shopping is easy — and its disadvantages — you can’t touch what you’re buying, you have to wait to receive your purchase, you have to pay for shipping. But sales tax is due on both bricks-and-mortar purchases and online purchases.

      You might want to make the argument that there shouldn’t be any sales tax on online purchases, but right now that tax exists. As we said in the beginning, the only question is whether retailers should collect it or consumers should calculate and pay it on their own.

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