There is importance and timeliness in the issue of Internet taxation. Internet commerce is growing exponentially. With this growth comes the potential for tremendous tax revenue, as well as criticism for receiving an unfair tax advantage. One of the benefits of the Internet is its lack of national and geographical boundaries. However, this lack of boundaries makes taxation and regulation of the Internet difficult, as historically geographical boundaries have helped to determine policies. One of the needs of a taxation policy for e-commerce is that it is consistent with established taxation policies both domestically and internationally. The tax policy chosen for internet commerce in the U.S. will, as a result, affect not only the internet commerce in the U.S., but also other forms of commerce within and outside of the U.S. This paper will address the implications of the current tax exemption on efficiency and social welfare.