The Internet Tax Freedom Act of 1998 was a landmark piece of legislation designed to protect the nascent digital economy.
The Moratorium
The Act established a moratorium on:
- Internet Access Taxes: States and localities are barred from taxing monthly internet access charges (with some grandfathered exceptions).
- Multiple or Discriminatory Taxes: States cannot tax electronic commerce differently than traditional commerce (e.g., specific taxes on downloads that don't apply to physical goods).
Purpose
The goal was to prevent a patchwork of thousands of local tax jurisdictions from stifling the growth of the internet. It does NOT mean the internet is a tax-free zone for sales tax purposes, as discussed in Part 2.