Congress Extends Internet Tax Moratorium

2/1/2005

In December 2004, Congress extended the Internet Tax Freedom Act, which prevents new state taxes on Internet-based transactions and services, but does not impact existing state laws, including existing state sales tax laws. The act is now extended for three additional years. The new legislation was delayed in Congress because of concern by many states that it would prevent collection of taxes from telephone companies with respect to telephone calls transmitted over the Internet. As a compromise, Congress eliminated that concern by allowing states and cities to continue to collect taxes on telephone services, even if the calls are made over the Internet.

Note that this law does not prevent application of existing state tax laws to online transactions, and states are mobilizing to tax online sales.

Jere M. Webb
503.294.9460
jmwebb@stoel.com