"Internet Non-Discrimination Act- was passed in 2000 in order to extend five years on "Internet Tax Freedom Act- (ITFA) which was due to expire in 2001. ITFA provides a three-year tax moratorium which has triggered a great deal of discussions and debates to the new business model of e-commerce and new types of transactions on the Internet. The e-commerce taxation controversy is apparently not merely between consumers and businesses, but more of an issue among stakes of consumers, online and offline businesses, and governments. The major problem here is whether Internet taxation should be executed, if yes how to execute it, and how much the tax rate should be set to.
One victim that suffers most directly from the lack of Internet taxes is the state and local government. The proposed ITFA would prevent states and localities from levying taxes on many communications and transactions conducted over the Internet for a minimum of three years. This "moratorium" on taxation of Internet and electronic commerce could have far-reaching effects on state and local revenues that "a new report by the General Accounting Office (GAO) claimed that state and local governments stood to lose anywhere between $300 million and $3.8 billion in sales tax revenue in the current year- (Internet Taxation "2000, page1). It also provides that " The GAO estimated that they would lose sales tax revenue up to $3.8 billion in 2000 and up to $12.4 billion in 2003. The GAO also estimated that the losses in 2003 would be $20.4 billion if the taxes nor collected on mail-order catalog and telephone sales were included- (Internet Taxation "2000, page 2). However, not all levels of the government agree to supports the idea of taxing the Internet business. The passing of ITFA as part of the Omnibus Appropriations Act of 1998 by the Congress even as state and local governments voiced for action is one good demonstration of the dilemma between the federal and state governments.