Taxing the Internet: Article by Attorney Eric Menhart

July 2, 2007
Lexero LLC

 

CyberLaw's principal attorney, Eric Menhart, recently had an article published in the Journal of State Taxation. The article, entitled Taxing the Internet: Analyzing the States’ Plan to Derive Online Sales Revenue,
explores the barriers that the states of the nation face in taxing
Internet transactions. The synopsis of the article is as follows:

 

"On a typical day, millions of consumers engage in online transactions
as varied as purchasing books to downloading music to printing out
movie tickets. In addition to being a convenient way to order and
compare prices, online sales have another benefit to consumers: most are
tax-free.

 

This fact is not lost upon the states of the nation, which heavily rely
on sales and use taxes for a vast majority of their annual income.
Local “brick-and-mortar” merchants are also against tax-free Internet
transactions because of the substantial competitive disadvantage it
imposes on their businesses. Taxing Internet transactions, however, is
not as simple as passing legislation in each of the 50 states. States
have to overcome significant legal roadblocks imposed by the Constitution, Congress and the federal judiciary if the
goal of deriving income from most online transactions is to become a
reality.


While there is significant room for discussion regarding the
appropriateness of taxing Internet transactions at all, the paper
primarily considers the views of states and local merchants: sales
taxes on the Internet are important for state revenue and maintaining
competitive balance for traditional merchants. Given this assumption,
the paper examines the problem of the present state of the tax law from
the states’ point of view. Next, it defines and considers the
differences between sales and use taxes and explores the current state
of law governing Internet taxes. Third, the paper discusses the states’
current and ongoing efforts to collect taxes from Internet
transactions. Finally, it proposes suggestions aimed at allowing states
to achieve the goal of requiring merchants to collect sales taxes on
online transactions."


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