Facing the Day of Decision on E-Taxes

In the midst of our national tragedy, some important due dates are likely to get lost in the shuffle. Such as October 21st, the day the current U.S. ban on new Internet taxes is scheduled to expire.

Those with a lot to lose or gain from how the Internet tax debate concludes are trying to make sure the deadline does not come and go without some action.

The expiration of the moratorium on online taxation was always looming as a date that could shape the future of e-commerce one way or another, but now it has taken on a new urgency.

Prior to September 11th, those in favor of extending the ban — or making it permanent — argued that e-commerce has yet to evolve on its own. Adding new taxes to an industry still trying to emerge in the marketplace would only damage its stability, they asserted.

That particular bandwagon has picked up speed now that the economy has taken the most serious punches it has felt in years.

What to Do?

Last week, Senator Byron Dorgan (D-North Dakota) proposed a modest extension of the ban until June 30th. Just weeks before that, a House of Representatives committee approved a five-year extension of the current ban, a proposal that has yet to be taken up by the House Judiciary Committee. Other legislators have proposed their own versions of an extension.

Those who want to extend the tax ban have their reasons. Some want e-commerce to remain relatively tax-free, to give it a fighting chance in an offline-dominated market. Others want the extension so individual states can come up with their own plans to tax Internet purchases.

Therein lies the irony: banning taxes for now just to free up time to develop ways to add new taxes.

Still, when a coalition of 40 governors signed a letter to Congress, asking for an extension of the current moratorium, they created some time for e-commerce to gain advantage, regardless of their motives.

Making a Case

Those in favor of state-imposed taxation of Internet transactions generally rely on numbers to make their case.

Right now, they are touting a recent study by Forrester Research and the University of Tennessee that indicates state and local governments stand to miss out on upwards of US$13 billion in sales tax this calendar year, from untaxed Internet purchases.

The study also projects that by 2011 the loss will swell to $54 billion. For those who think those figures are high, it is important to note that much of the loss is projected from business-to-business (B2B) transactions.

New Playing Field

Prior to the September 11th terrorist attacks, proponents of taxation argued that brick-and-mortar retailers deserved a “level playing field,” and should not have to compete with online sellers, most of whom do not charge tax.

That position doesn’t hold up now, particularly since the imposition of new taxes when the economy is unstable has rarely been a workable solution historically.

Further, those who talk about a level playing field must take into account the fact that e-commerce was already struggling mightily prior to the economic dropout. To further burden e-commerce with taxes now would only add to the advantage of its brick-and-mortar competitors, or so the counter-argument goes.

Front Row Seat

Having followed this issue for a few years now, it looks like the longer the debate rages, the better it becomes for e-commerce. While the various sides argue their points, e-commerce continues to flow along its path of development and growth.

Every time a legislator introduces a plan to tax or not tax e-commerce, another legislator finds reasons why the proposal won’t work.

The ongoing struggle to find an equitable solution appears destined to continue indefinitely. As a result, an extension on the current moratorium appears imminent.

Time To Honor

Because there are more pressing issues at hand, now is not the time for lawmakers to be considering taxation of the Internet.

As for that deadline, it was established when the words “level playing field” referred to a different type of commercial landscape. On October 21st, legislators need to honor the needs of the economy by extending the deadline.

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

Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.

1 Comment

  • Taxes may be inevitable, but tax assessing can be delayed. What should guide that “delay” is the state of the state (or federal government). Specifically, states or possibly the federal government should determine what percentage of taxes they can afford to surrender toward helping e-commerce develop; then when that target is exceeded, inject taxation. This way, no arbitray deadline is set, state and federal government share in the process of investing in and building up e-commerce, and taxation can roll out on an as-needed basis. After all, why should South Dakota tax my purchases from there when they may only do 1% of all commerce over the Internet and Texas does 30%?

    I’ll expect Texas, in my example, has provided a greater investment in e-commerce and is “ready” to tax me for purchases arising out of Texas, rather than South Dakota, which may have a few more percentage points of investment in e-commerce to qualify to tax me there. In addition, not only does this method mete out the right to tax after properly set investment objectives by governments, but it also has the effect of creating state competition for e-commerce dollars and a feedback mechanism that some state(s) may not be doing enough to extend e-commerce and all its accoutrements like security, etc.

    Setting an arbitrary date certainly is not as effective as encouraging governments to encourage e-commerce development. Let taxation be their carrot.


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