This law prohibits federal, state and local governments from taxing Internet access and imposing discriminatory taxes only on the Internet, such as taxes on bits, bandwidth and email. The Internet Tax Freedom Act prohibited new taxes on Internet access fees and discrimination in e-commerce. Most states do not tax Internet access fees. The Act did not prohibit states from taxing transactions conducted over the Internet.
If a purchase is made online, they are generally taxed in the same way as if it were purchased offline. The real question is whether a retailer is required to collect the tax, which is known as a nexus. If an Internet retailer does not collect sales tax for a taxable sale, the buyer is required to pay the use tax due for the purchase to the state in which the property is used. Use tax is defined as a tax on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid.
Use tax is complementary to sales tax and does not apply if sales tax was collected. The use tax is not a discriminatory tax, since it applies to all sellers (mail order, Internet, out-of-state sales, purchases from home) and taxes goods purchased out of state in the same way as goods purchased in the state. Therefore, regardless of whether you are not taxed on an item purchased online, you are still personally responsible for the use tax. The Supreme Court changed the rules for collecting sales tax from Internet-based retailers and established that individual states can require online sellers to collect the tax.
The law had two main features, a ban on taxes intended for Internet access and a prohibition of discriminatory taxes against e-commerce, such as taxes on bits, taxes on bandwidth or taxes via email. The law generally prohibits states and municipalities from taxing access to the Internet, but a handful of states “with vested rights” were granted temporary authority to administer taxes enacted before the fiscal freedom law. In three months, half a dozen states will lose their authority under the Internet Fiscal Freedom Act (ITFA) of 1998 to levy taxes on subscription fees charged by Internet providers such as AT%26T, Cable One, CenturyLink, Comcast and Verizon. Medical equipment and supplies purchased by a person for use in providing medical services in exchange for compensation are subject to sales and use taxes.
In addition, it found that the moratorium “results in an unequal application of state and local taxes to the provision of services.