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State Business Income Taxation

This Portfolio discusses the application of state sales and use taxes to communications services and electronic commerce. As state and local governments determine whether and how to tax electronic commerce and the communications services through which they are carried, taxpayers seek answers to whether their transactions are subject to tax. Communications services include both services provided by traditional telecommunications companies, as well as the newly emerging technologies, such as mobile telephony and paging, wireless telephone services, and the internet.
 The Portfolio provides a historical discussion of the Bell System's monopoly and the effects of its breakup. The current status of telephone services and broadcast media is reviewed, including the Telecommunications Act of 1996.
The authors analyze what constitutes a sufficient connection between the taxing state and the taxpayer and between the taxing state and the taxpayer's activity such that the state may have jurisdiction to impose a tax. The Multistate Tax Commission's publication “Draft Guidelines for Application of State's Sales and Use Tax to an Out–of–State Business” is also reviewed, in an attempt to further understand the constitutional principles involved. Next, the Portfolio analyzes other constitutional issues including whether taxes upon interstate services must be apportioned.

The Portfolio then turns to determining whether a service is taxable as telecommunications, examining the taxation of traditional telecommunications services as well as non-traditional services such as information services, internet access, VoIP and communications services bundles. The Portfolio also examines the taxation of traditional interstate telecommunications services, private communications services, WATS/800 services, 900 services and interstate access service
In addition, the Portfolio covers the historical and current treatment of internet services, including a discussion of the several versions of the federal internet Tax Freedom Act; the sourcing of various forms of telecommunications services; and some of the major issues and developments regarding taxes other than sales taxes.

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Washington, DC
Adam C. Pollet, Associate
Washington, DC
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