Summary: The tax policies governing internet sales and internet use are going to
be questioned and probably adjusted.
The internet economy has created waves in the realm of taxation. Often we think of taxes as
being limited to income tax, but owners and operators of commercial internet sites (as well
as the governments that regulate them) are very concerned with the lack of taxes generated
by internet sales. While internet transactions continue to change the way companies do
business, governments must start taking a harder look at how much is being forfeited in tax
dollars. In 2001, President Bush signed the Internet Access Taxation Moratorium. The
legislation effectively delayed the inception of internet access taxes until at least November
2003. However, internet sales taxes or the lack of them seem to pose the biggest problem for
legislators concerned about taxation and the internet. Sales taxes are state taxes and by
2011 it is expected that California's state and local revenue loses from E-commerce will be
over 7 billion dollars.
What good is a tax if it inhibits business? The idea has been that taxes are designed to
help stimulate economic growth and generate revenue for the government. One of the reasons
internet sales are attractive to consumers is that sales tax is often not charged. When
President Bush signed the moratorium in 2001, he stated that the government should do everything
possible to make the internet, a learning tool, available to everyone.
He also said that the moratorium would help ensure the continued growth of the internet by not taxing its use.
Government does not want taxation to inhibit the growth of the internet by taxing its users,
but it is willing to let internet companies destroy brick and mortar companies who are forced
to charge sales tax. Consumers will always choose to pay less at a virtual store than pay
more in a physical store. Currently, individuals are supposed to record their online purchases
and pay sales taxes on the goods they buy. Theoretically, online shoppers should pay these
additional sales taxes with their standard income tax forms.
Some of the biggest names in online retail sales do charge sales tax, but many do not. Online
retailers like The Gap, Circuit City, and Staples all charge sales tax on online purchases and
are continuing to grow. One problem is deciding which
jurisdiction should receive the tax revenue. Often, websites are hosted on servers in one state,
offices are in another state, and shipments are sent from a third state. Currently, internet
vendors only have to collect sales taxes in states in which they have a physical presence.
If internet sales continue to be tax free, arguments will mount attacking the inequity in
permitting that to happen. To purchase items on the internet, a buyer needs a computer, a
modem, and a credit card. It seems like those that can afford to have these luxuries are the
ones who will get the benefit of not paying sales tax. The poor will get stuck paying sales tax in the stores.
How can the government regulate so many business entities and collect taxes from them? Software
currently exists that can tax products according to jurisdictions, price, and all other determining
characteristics. Some of these tax software programs cost as little as $1,000 and can be
continuously updated. To combat the problems posed by the varying
levels of sales tax charged in different states, the National Governors Association recently met and
voted to streamline the tax process by creating a uniform sales tax rate across states. The decision
will take effect when ten states create legislation agreeing to the proposal.
The internet continues to change the way we live. The question of taxation remains. Will internet
taxes increase so that state governments can deal with their increasing budget problems and the
lack of state funding?
Additional sources of information:
http://www.firstmonday.dk/issues/issue2_10/muscovitch/
http://www.nga.org/nga/salestax/
http://www.nado.org/legaffair/internet.html
http://www.salestaxfairness.com/index.htm
http://web.utk.edu/~dbruce/brucedeskinsfoxpfr02.pdf
http://www.cei.org/utils/printer.cfm?AID=1726
http://moneycentral.msn.com/articles/news/capitol/5211.asp
