Who’s Afraid of an Internet Sales Tax?

As if the e-commerce sector weren’t worried enough about the prospect of e-commerce taxes, along came Active Research on Wednesday to say that most Americans would cut back online spending if they had to pay taxes.

The news quickly wiped away any optimism that sprung up after Senator Joseph Lieberman (D-Connecticut), the Democratic candidate for vice president, assured tech execs that a Democratic win would mean certain extension of the current sales tax moratorium.

But get this: Both bits of news are all but irrelevant. It may not happen now or next year, but online purchases will be taxed soon. And despite what shoppers told the folks at Active Research, it isn’t going to be lights out for online shopping.

In fact, fear of the sales tax monster may be worse than the taxes themselves.

Comfort Zone

So far, e-commerce has basically avoided the sales tax blues. The main reason, sometimes stated, sometimes implied, is that no one wants to snuff out the growing industry. That’s understandable.

Meanwhile, though less than 1 percent of retail purchases in the U.S. are made online, that number is certain to grow during the three- to five-year life of the proposed moratorium extension.

In other words, more and more shoppers are getting used to tax-free buying on the Web every day. It’s becoming an expected part of the bargain.

But just how long does e-commerce get to grow unfettered by taxes? Real-world retailers are demanding answers to that question, and for good reason.

Everyone Wants Protection

As online shopping becomes more mainstream, more savvy shoppers will skip the local mall and save a few dollars by buying off the Internet.

Talk about an uneven playing field. E-tailers strut around like peacocks full of pride over double-digit growth and record-setting holiday seasons. But that’s like the Mets boasting that they beat the Yankees by twenty runs without mentioning that the Yankees only had one outfielder.

The lack of sales tax is an unfair advantage, and it is eventually going to be taken away for just that reason.

Inevitable Outcome

Can the tax be delayed? Sure. More studies will be commissioned, extending the debate along with the moratorium.

But as that happens, the evidence will pile up. Each subsequent study will show that real-world retailers are being hurt, that states are in turn losing millions of dollars and that social programs are suffering as a result.

So it will only be a matter of time before the push to levy some sort of national sales tax online is successful. Then there will be much gnashing of teeth, and the fulfillment of many dire predictions. A sudden intrusion of sales tax would, without doubt, send some shoppers elsewhere — for a while.

But not all of them. Shoppers might have good reason to stay away from the Web, but will every online shopper go back to buying at the mall? Of course not. And many of those who do leave are bound to come back.

Toothless Monster

In fact, the online shoppers of today are the bread-and-butter of tomorrow’s e-commerce landscape because they know the convenience of buying a book on impulse and having it land in their mailbox a day or two later. They like not searching for parking spots, dealing with crowds, and sitting in traffic.

E-commerce has those advantages and more. It’s time to put faith in them, to trust that they can ward off the evil spirits of taxation and government intrusion which are, to be certain, coming.

There are many potential pitfalls stalking e-commerce. But the bogeyman of sales tax isn’t as bad as everyone thinks. The e-commerce industry needs to bear in mind that the longer the tax moratorium is extended, the bigger that one time hit is going to be for e-commerce and the larger economy.

In fact, once it’s brought out into the light and the fears are faced head-on, it won’t seem so scary any more.

4 Comments

  • Who’s Afraid of an Internet Sales Tax? I AM !
    I’m just an average guy that started an online store to sell old games, cookbooks, anything I think is cool. http://www.neighborhoodvalues.com
    The hope is to grow the business into a operation that provides a comfortable income. So far I’m a one-man operation, and up until November 2002 I was getting orders on my web site occasionally. I supplemented that by selling on eBay. November everything changed. Since then, I’ve been getting orders every day. Which is great! But, there always is a but!
    I find little time for things like family, recreation, sleep. That’s to be expected if you go into business for yourself. Keeping up with all the State and Federal paperwork takes up valued time that could be devoted to selling.
    What’s it going to be like when I have to process sales tax info for 50 states?
    I’m already seen web sites that will handle this for a fee. $1500.00 set up $250.00 per year.
    Can I justify this expense when I sold just $13,000.00 worth of merchandise in 2002? I don’t think so.
    With shipping charges always increasing and adding a sales tax to the equation, it might just price me out of the online market.
    I feel that this just might squash the new Millennium’s American Dream!
    If I have to process sales tax info for all 50 states, it’s not worth my time. I’d make more if I became a Greeter at Wal-Mart. Sad but True.
    In my opinion a web sales tax will kill all kinds of small Mom & Pop net sites.
    Open to suggestions!
    Dave

  • E-tailers strutting around?!? Most E-tailers will be lucky to see another holiday shopping

    season. On-line retailers are dropping like flies, most of them never having seen a profit.

    The internet sales tax will simply kill off the remaining firms.

    Here’s a prediction: when Amazon closes the doors sometime in the next year or so,

    on-line shopping can be considered to be dead. State Governors and local retailers will cheer.

  • To say that bricks and mortar retailers are at a disadvantage is not true. If I purchase a 20.00 cd or book online i’m ususally subject to shipping and handling charges, which are more than any jurisdictions sales tax in the U.S. These shipping charges clearly outweigh the benefit of saving on sales tax for a consumer. If you wan’t to cry like a Democrate about fairness, than lets make all bricks and mortar purchases subject to shipping and handling charges, and lets make it real difficult to report and collect these charges so that more compliance audits are needed and business owners will have to waste money on CPA’s to figure out the damn law and reporting requirments just as internet businesses would if there is a sales tax. C’mon stop your crying get educated do the math.

  • I hope the inter net tax never comes about.Our government is the biggest busines monopoly in the world.Every time a new efficient way of conducting business comes along our wonderful government starts thinking up ways of taxing it.Example our wonderful government is now toying with the idea of taxing email, because the post office is loseing money. Why should consumers be forced to support a business that cant keep up with the current trends? If the post office were a private company it would have to reinvent itself or be replaced by another more efficient company, and for the excuse that the government is loseing valuable revenue to support local schools and other municipal projects, I dont buy it! Look at what the state governments did with the money they recieved from lottery’s. They sqaundered it. Every time they get there gruby hands on new tax revenue they sqaunder it!We AM ericans pay enough in employment taxes; state, federal, FICA, and the list goes on and on. I think we are entitled to save a little money here and there. I think we should tax the political figures who come up with these stupid greedy ideas, that would be enough revenue to buy everyone in the U.S. a new 200,000 dollar home.

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