Internet taxation

In 1996, several U.S. states and municipalities began to see Internet services as a potential source of tax revenue.

The 1998 Internet Tax Freedom Act halted the expansion of direct taxation of the Internet, grandfathering existing taxes in ten states. In the United States alone, some 30,000 taxing jurisdictions could otherwise have laid claim to taxes on a piece of the Internet. The law, however, did not affect sales taxes applied to online purchases. These continue to be taxed at varying rates depending on the jurisdiction, in the same way that phone and mail orders are taxed.

Internet access taxes normally take the form of taxation on Internet service provider (ISP) access charges. ISPs levy these charges on users. Currently, these fees are typically imposed at the state level. There is no national tax on ISP user charges. No uniform description of Internet access taxes is possible; they fall within the category of sales taxes in some states, and telecommunications taxes in others; and they are considered service charges, which are usually exempt from taxation, in still other states. Ten states (which were grandfathered under the Internet Tax Freedom Act as part of a political compromise) are allowed to provide for some manner of taxation on ISP charges. The ten states are Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington & Wisconsin. Under the grandfather clause included in the Internet Tax Freedom Act, Texas is currently collecting a tax on Internet access charges over $25.00 per month. Texas collected tax on internet access prior to the enactment of ITFA under the "Taxables Services" provision of its Tax Code, see older § 151.0101(a). Texas has refined its tax code to define "Internet access service", include it under "Taxable Services" and exempted the first $25.00 on a monthly basis, See current Texas Tax Code § 151.325 & 151.0101(a)

E-mail tax is a specific type of bit-tax, which would tax based on volume of email sent or received, quantified either by number of messages or data size of the messages. This type of tax was mentioned in a 1999 report by the United Nations Development Program entitled "Globalization With a Human Face", as a type of bit tax which would raise an estimated $70 billion (US) if implemented globally. The e-mail tax has been the subject of numerous internet and political hoaxes. Imposition of e-mail taxes by the U.S. government or any of its political subdivisions is banned by the Internet Tax Freedom Act.

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