Campaign Rhetoric Clouds Internet Tax Issue

During a recent Republican presidential debate, Arizona Senator John McCain challenged Texas Governor George W. Bush to join him in a pledge to permanently ban Internet taxation.

Bush declined the offer, saying instead that a three-to-five-year extension of the current tax moratorium would be a more prudent course.

No Uncertain Terms

McCain, who is currently campaigning heartily in New Hampshire, signed his pledge at a Chamber of Commerce breakfast in the state. During the ceremony, the former prisoner of war left no doubt about how he wants the issue resolved.

“A permanent ban on Internet taxes,” McCain declared. “Not a moratorium, but a permanent ban. [No Internet taxes] now, not soon, not ever.”

Would Internet Tax Stifle New Economy?

McCain and others who share his hard line contend that Internet taxes would seriously stifle the booming new economy.

One recent study by the Information Technology Association of America (ITAA) came to the same conclusion. The pro-business group found that about one-third of American adults would be less inclined to buy products on the Internet if those purchases were taxed.

The data was released in conjunction with the Advisory Commission on Electronic Commerce’s September meeting. “Voters want to see growth in the Internet and e-commerce, not e-taxes,” the ITAA said.

In a survey of 1,000 registered voters, the organization found that “a shocking” 34 percent said that they would be less inclined to make purchases either by mail order or over the Internet if both types of companies were required to collect sales taxes on purchases. The ITAA also asserted that the growth of the Internet and online commerce are more important to voters than the potential taxes generated by e-commerce.

Will Pledge Resonate With Voters?

“Even when presented with the possibility that state and local governments might lose tax revenue as a result of not collecting sales taxes on Internet purchases, voters are still opposed to taking steps to collect revenue from Internet purchases,” the ITAA added.

Conversely, many local, state and federal officials vehemently disagree with such findings. They argue that while consumers might be willing to enjoy a free tax ride on the Internet now, they are doing it on the backs of local jurisdictions that will be hard pressed to provide local services with reduced tax revenue. They believe that these same consumers will be infuriated when their property taxes are hiked to make up the shortage.

Additionally, brick-and-mortar retailers feel that it would be unfair for them to have to pay such taxes while their cyber-rivals continue to operate tax-free.

What About Brick-and-Clicks?

One factor that McCain and others seem to be overlooking is the presence of the brick-and-click — or click-and-mortar — retailers that operate both online and offline stores. The brick-and-click phenomenon picked up substantial momentum in 1999, with about half of the nation’s leading 100 retailers operating online commerce sites.

Under current tax laws, brick-and-click stores are not exempt from Internet taxation when the e-shopper resides in a state where the retailer has a physical store. As an example, Toys “R” Us must collect sales taxes on virtually all of its sales, because it operates nationwide.

The movement of brick-and-clicks online threatens to complicate the Internet taxation debate to the point where it becomes incomprehensible.

A Tangle of Complex Questions

If consumers were so concerned with taxes on the Internet, as the ITAA says, for example, why were brick-and-click operations like Toys “R” Us so successful this holiday season?

Furthermore, why should brick-and-clicks have to pay taxes for online sales, while pure e-tailers do not? If you end taxes for the online sales of brick-and-click stores to make them even with pure e-tailers, however, will everyone order online to avoid paying local taxes, but then pick up the products at the stores for convenience?

Avoid Extremes

Ultimately, I believe that the taxation of the Internet could end up being one of the biggest issues of the political season, but all parties need to stop looking at the matter in terms of black and white.

Certainly, the new economy should be given a chance to flourish before it is taxed. To do otherwise would be akin to slaying the golden goose.

Nonetheless, I think it is unrealistic to think that broad campaign pledges and party politics will be able to resolve what is rapidly becoming a complex issue. Let’s leave the rhetoric behind and work together to find a way for everyone to live with a brilliant shade of gray.

What do you think? Let’s talk about it.

1 Comment

  • What is the stance on internet purchases by someone in state using a credit card with a billing address in another state??? For example I work in e-commerce in Colorado and have come across internet orders for people that are in the state and are having sed item delivered in Colorado but they are using CC’s with a billing address from another state . Should these people be exempt from paying Colorado sales tax?

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