The Internet Tax Freedom Act (ITFA), which was signed into law on October 21, 1998, does not preclude sales and use taxes on any and all commerce conducted over the Internet. State and local governments are allowed to impose sales and use taxes on all such electronic sales, provided that the tax (and its rate) are the same as that which would be imposed on the transactions if they were conducted in a more traditional manner, such as over the phone or through mail order.
The ITFA is intended to prevent any jurisdiction from imposing special taxes on Internet transactions, other than such taxes that a jurisdiction already has the ability to impose (e.g., sales tax). The ITFA prevents the imposition of any such taxes through November 1, 2003.
Currently, most e-commerce companies use the same taxation rules used by mail-order companies, which are based on constitutional guidelines for interstate commerce. Generally this means that states can only require companies to collect sales tax in states where they have business operations, and as a result, a company will not collect sales tax in states where they have no business operations. If someone were to order something from our online store, that person would only be charged sales tax if he or she shipped his or her order to a state where s&h officescapes has physical operations. Example: If a person shipped something to New York, Reading Railers would not be required to collect sales tax because it currently does not have business operations in New York.
The ITFA also prohibits state and local governments from imposing taxes on Internet access charges, protects against the imposition of new tax liability for consumers and vendors involved in commercial transactions over the Internet, and creates a temporary commission to study taxation of Internet commerce and to report back to Congress in 18 months on whether the Internet ought to be taxed and, if so, how taxes can be applied without subjecting the Internet and electronic commerce to special, discriminatory, or multiple taxation.
