Internet and Commerce

I. Taxation

In October 2007, President Bush executed the Internet Tax Non-Discrimination Act (“ITNDA”). It also refined the definition of “Internet access” to comprise of telecommunications services which are purchased, used, or sold by a provider of Internet access to provide Internet access. However, the new legislation also allowed states that imposed and actually enforced a tax on telecommunications services "purchased, used or sold by a provider of Internet access to provide Internet access" as of November 1, 2003 to be grandfathered from the moratorium and to continue taxing such services through October 31, 2005. Therefore, from November 1, 2005 to November 1, 2007, such telecommunications services used solely to provide Internet access are exempt from state and local sales taxes in applicable jurisdictions if such services are used solely to provide Internet access.

Forty-four states and the District of Columbia formed a group under the Streamlined Sales and Use Tax Agreement (“SSUTA”) so to abridge related tax laws and to ensure uniformity across state lines.

II. Online Sale of Goods

The sale of goods online has also been affected by the Internet. For example, the sale of wine on the world-wide-web (i.e., the Internet) has been impeded by various state laws which regulate in-state delivery/supply/circulation of alcohol. The Supreme Court has held that state laws regulating the sale of alcohol are limited by the non-discrimination principle of the Commerce Clause . See Granholm v. Heald, 125 S.Ct. 1885. The Commerce Clause refers to Article 1, Section 8, Clause 3 of the United States Constitution, which gives Congress the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”

III. Gambling on the Internet

In 2006, the United States Congress passed the Unlawful Internet Gambling Enforcement Act (“UIGEA”) in order to prohibit businesses which engage in unlawful online gambling from accepting wagers through credit card and other payment methods.

The act makes it illegal for gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law. In addition, UIGEA specifically excludes fantasy sports and legal intra-state and inter-tribal gaming. It does not expressly mention state lotteries, nor does it clarify whether inter-state wagering on horse racing is legal.

The Department of Justice has taken the position that all Internet gambling operations accepting wagers from individuals within the United States violate federal laws, including, but not limited to, the Wire Wager Act. So, the department has had the tendency to investigate online advertisers relating to gambling. However, the Department of Justice’s prosecution warnings has been challenged by some, arguing that such conduct has a chilling effect on the First Amendment right of free speech.