The rapid growth of electronic commerce is likely to revolutionize home and work life. The economics and finance are the biggest field to be affected by this. The biggest impact of this wave of change in business practices will definetly be on tax system. The present system on businesses requires them to pay taxes if they sell their merchandise from their shops or stores.

But the talking point is whether the online stores selling everything from hardware merchandise to trivial stuff is taxed or not. This issue is already being debated fiercely in some states in the US. In the absence of any tax on online merchandising, stores and corporations are reaping huge profits out of this way of trade. Critics of such an Internet Tax in the US argue that this tax, if implemented, will hamper the growth of Internet, making online stores comparable to physical stores at the cost level to a buyer. This will be detrimental to the health of Internet commerce and Internet itself. Since Internet is very much in its infancy it wil be better to allow the e-business to settle first and then taxing should be done.

Basically, there are three areas of contention: I

Basically, there are three areas of contention: Internet access through an Internet service provider; sales of goods over the Internet through the use of credit cards; and information and software downloaded from the Internet.

Sales that are taxable when they occur outside the Internet are also taxable when they take place on the Internet. For instance Internet-based sales of computers, books, clothing, all of which have been sold via mail-order for many years, are subject to the same rules as mail-order sales. Transactions occurring only on the Internet include digital product sales, such as software, books, and music downloaded from the Internet. However is no official guidance at all, in any state, on downloaded music, books, or video. Internet-based services are usually not subject to sales and use tax, because most states tax only a few selected services

Some states, such as Arizona and Connecticut, are aggressively charging tax on basic Internet access and e-mail services. Those charges are subject to sales and use tax in some states and to telecommunications taxes in others. Other states consider Internet access fees to be a service, which is generally tax-exempt.

One of the most intensely debated issues concerning Internet taxation is where having a web site hosted within a taxing state creates nexus for the seller. The very nature of the Internet also allows it to not only act as a purchasing medium, but also as a delivery one as well. Whether transactions are taxable is determined by a state's position on tangible vs. intangible goods. Taxation also will affect ISPs, as people looking for Internet access will look outside their state for an ISP. And then there's the issue of states' rights. The states in US argue that the federal government should not impose rules upon the states regarding tax

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Approximate Word count = 1228
Approximate Pages = 5 (250 words per page double spaced)