Would you like to pay
more on every book
you buy through Amazon.com? How about paying sales tax
on CDs, video games or clothes you buy online
? Though you might not want to have anything to do with taxes yet, the issue of Internet taxation
affects everyone including the average college
student. Therefore, it is important that Congress
deal with the issue of Internet taxation in great depth
, considering the perspectives of not only e-businesses and their online customer
s, but also the effect a tax
would have on the government at both the state and national levels.
On Oct. 21, 1998, the U.S. government passed the Internet Tax Freedom Act, which imposed a three-year moratorium on Internet taxation by states or other local authorities. Most recently, on Aug. 2 of this year, the House Judiciary Subcommittee on Commercial and Administrative Law voted to extend this ban on new taxes on e-commerce, which will expire in October, by five years. It also voted to ban Internet-access taxes permanently, and voted against an amendment that supports states' interests by advocating collecting Internet sales taxes. President Bush and most members of Congress backed these actions. For the federal government, it is easy to maintain the status quo and allow the ban on e-commerce taxes to continue. However, it is difficult to determine whether or not the ban should continue, and if not, to decide what types of taxes would be imposed.
There are many reasons why Congress seems so reluctant to even consider creating a new tax law. First, there is a major conflict between the interests of states versus those of e-commerce businesses. States with sales tax laws argue that by not imposing sales tax upon all customers that buy goods online, they are losing a significant amount of revenue, which is rightfully theirs considering the fact that customers and enterprises buy goods on the Web and then have them delivered to their residences. Congress' General Accounting Office estimated that states could lose $12.5 billion by 2003. However, businesses involved in b-to-b and b-to-c markets feel that these taxes will cause many potential customers to get turned off by e-commerce, therefore killing an area that had just begun to spread its wings.
Moreover, the popularity of e-commerce is contingent upon the fact that many people buy goods online because the prices are much lower than those of brick and mortar competitors, which results in lower margins. Because e-businesses rely upon the volume rather that the price of their sales in order to be financially successful, imposing an Internet tax would put many of them out of business. In addition, retailers worry that if out-of-state retailers have to collect state taxes without a simplified sales tax system, as there are 7,600 tax jurisdictions in the United States, many smaller companies would go out of business. Many find states' fear over uncollected e-commerce taxes unfounded, as they have been losing revenue due to catalog sales for many years. Out of $3.2 trillion in the year 2000 retail sales in 2000, 3.4 percent was from catalogs while less than 1 percent was from e-commerce. However, a study by Gartner Dataquest states that from 2000 to 2004, e-commerce will grow from $29 billion to $142.5 billion.
Though the interests of all involved parties should be kept in consideration, there are even more basic and technical dilemmas to face. To begin with, it is virtually impossible to keep track of all Web sites' locations and all individual transactions on the Internet; even if Congress were to pass Internet tax laws, how would they be enforced on such an unregulated and global medium as the Internet? Can you imagine how easy it could be to evade those types of tax laws? We would only be creating law-breaking, rather than law-abiding, citizens. While large, established companies would be forced to conform to the tax laws, small, untraceable companies would get away with not paying income tax, which would be truly unfair. This logically leads to the question: should we impose a national tax law if not all citizens will be equally taxed?
One very interesting solution to this problem is to tax only certain types of online businesses. Though services and goods that are intangible are difficult to track, any goods bought by consumers that have to cross the border or that have to be delivered will be monitored. So any business that uses the country's infrastructure to create or deliver the product will be forced to pay sales tax. Which is fair, because they are using the nation's services for their own profit.
Another alternative is one that was proposed by Assemblywomen Carole Migden, D-San Francisco, and Dion Aroner, D-Berkeley, which states that a sales tax should only be applied to companies that do business online and have brick and mortar operations in California. The law states that companies must only pay taxes if they have another physical location in the state. Nevertheless, some businesses, such as Barnes & Noble and Borders Books, are bending the rules by having separate online companies that they do not pay state sales taxes for books customers buy online. However, Governor Davis vetoed this measure twice.
What is the future of legislation regarding Internet taxation? Whether we like it or not, Internet taxation is coming, even if not for another few years. But for now, you can sit back and relax, because there is no way that the Bush administration, with its strong Republican support of the business sector, will allow any major legislation to passed. We live in a society in which technological advancements constantly challenge legal frameworks, and we must therefore adapt our laws to match the rapid pace at which we change how we view the world. Regardless, I personally feel that the best solution to this problem would be to wait until e-commerce has become a common and established business method, meaning that a majority of Americans buy products online. Once e-commerce has developed to a point where there is no possibility of people reverting back to brick and mortar establishments if there are sudden setbacks come into place, and once it has become as firmly rooted in the American psyche as surfing the Web, then it will be safe to put sales taxes into place without killing e-commerce.
Of course, we must also look to the welfare of the nation. Many argue that not having an Internet tax would hurt all of us in the long run, because as more companies realize the advantages of e-commerce and switch to online business, the government may face a significant decrease in tax revenues. This could ultimately hurt the budget and therefore the success of government-run social programs, such as those pertaining to welfare and education. But we don't know that yet. Let's wait and see if the nation's interests are being hurt in any way by the lack of e-commerce tax, and if they are, then by all means we should go forward with the tax legislation. But we should not shackle a potentially revolutionizing force before it has time to grow. I hope you are as interested as I am in seeing where e-commerce will take us next.