Internet Taxation Resolution Exposed

The Internet Taxation Resolution was adopted by ALEC's Tax and Fiscal Policy Task Force at the Fall Task Force Summit on November 13, 1999, approved by the full ALEC Board of Directors in December, 1999. ALEC has attempted to distance itself from this piece of legislation after the launch of ALECexposed.org in 2011, but it has done nothing to get it repealed in the states where it previously pushed for it to be made into law.

ALEC Resolution Text

Summary

America's current unprecedented economic expansion is being driven, in large part, by the explosive growth of Internet companies and electronic commerce. The robust development of electronic commerce has attracted the attention of government officials committed to establishing tax authority over Internet transactions. In 1998 the US Congress, in a move to protect the further development of this emerging technology and marketplace, instituted a three-year moratorium on Internet taxation. As the moratorium draws to a close, state and local officials continue to push for taxation authority on the grounds that federal restriction constitutes a violation of states' rights. But arguments for taxing electronic commerce ignore legal precedents based firmly in the US Constitution. According to rulings by the US Supreme Court, attempts to impose state and local taxes on out-of-state Internet companies may represent a violation of the Commerce Clause.

This resolution calls for state governments to refrain from taxing electronic commerce and allow it to continue to grow in an unfettered environment.

Model Resolution

WHEREAS, electronic commerce is considered an engine for future economic prosperity; and

WHEREAS, electronic commerce provides entrepreneurs and small business the ability to expand their markets and reach out to customers across the globe; and

WHEREAS, current tax policy could subject electronic commerce transactions to multiple taxation from multiple jurisdictions; and

WHEREAS, The United States Supreme Court has consistently ruled that the Constitution places strict limits on the ability of state and local governments to impose tax burdens on interstate commerce; and

WHEREAS, efforts by state and local governments to apply existing tax policy to electronic commerce would violate constitutional limits on their taxing authority; and

WHEREAS, absent these constitutional limitations, the ability of entrepreneurs and small businesses to compete in the global marketplace would be severely limited; and

WHEREAS, the vast majority of electronic commerce transactions would be exempt under traditional existing sales tax policy, e.g. transactions for services or business-to-business transactions; and

WHEREAS, state and local governments are currently experiencing a period of strong revenue growth and record budget surpluses; and

WHEREAS, businesses operating in the global electronic marketplace are currently subject to a number of other state and local taxes; and

WHEREAS, independent studies have concluded that the current revenue loss to state governments from the non-taxation of the Internet is less than one-half of one percent; and

WHEREAS, the average working American family already faces the highest tax burden in our nation's history, paying close to 40 percent of its income in local, state and federal taxes; and

WHEREAS, the current federal moratorium on Internet taxation has laid the foundation for the explosive and revolutionary growth of a vital sector of the economy; and

WHEREAS, the current federal moratorium on Internet taxation will expire in 2001; and

WHEREAS, the US Congress has empanelled the Advisory Commission on Electronic Commerce to study all aspects of electronic commerce and the Internet;

NOW THEREFORE BE IT RESOLVED, the American Legislative Exchange Council believes that the current federal moratorium on Internet taxation should be extended to allow a thorough examination of all aspects of electronic commerce; and

BE IT FURTHER RESOLVED, that ALEC believes the Advisory Commission on Electronic Commerce should examine the question of "whether" the Internet should be taxed, and not just "how" to tax the Internet; and

BE IT FURTHER RESOLVED, that ALEC believes that unless there is a fundamental reform of existing tax policy within the Constitutional limitations placed on state and local governments' taxing authority, the federal moratorium on Internet taxation should be extended indefinitely.

Adopted by ALEC's Tax and Fiscal Policy Task Force at the Fall Task Force Summit November 13, 1999.

Approved by full ALEC Board of Directors December, 1999.