Testimony of Jonathan Zittrain before the United States Senate Committee on Commerce, Science, and Transportation on S. 2255, a proposed extension of the moratorium of the Internet Tax Freedom Act April 12, 2000

Current tax law makes it difficult to enforce sales taxes on most Internet commerce and has generated considerable policy debate. In this paper we analyze the costs and benefits of enforcing such taxes including revenue losses, competition with retail, externalities, distribution, and compliance costs. The results suggest that the costs of not enforcing taxes are quite modest and will remain so for several years. At the same time, compliance costs are also likely to be low. There are benefits to nurturing the Internet but they tend to diminish over time. When tax costs and benefits take this form, a moratorium provides a natural compromise.