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The fact that the Internet is generating huge profits hasn't slipped by the taxman. Find out which rules affect your e-commerce business.

This story appears in the September 1999 issue of Entrepreneur. Subscribe »

With all the business blossoming on the Web, it's no wonder tax issues are still rearing their ugly heads. Although put the brakes on new access or discriminatory taxes from the states with the enactment of the Internet Tax Freedom Act in October 1998, it still left a host of tax issues untouched.

What exactly are discriminatory taxes? In the case of e-commerce, they refer to taxes that designate certain Internet transactions as being taxable, while similar transactions executed through mail order or other means are not. Even though the new Internet law placed a moratorium on these taxes until 2001, state and local levies enacted prior to passage of the law still apply. Thirteen states, for example, are allowed to collect Internet access taxes. Other existing laws, such as one in Vermont holding companies that act as electronic malls responsible for remitting sales tax, are also unaffected by the act.

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