Let’s Talk About Taxes

No one likes paying taxes. But no one likes bumpy roads or getting mugged either.

The fact is that (for good or ill) much of America’s state and local government spending is funded by sales taxes. But most Internet transactions are free of sales tax. Web stores are treated the same way direct mail catalogs are. Local sales taxes aren’t imposed unless you have a store, factory or warehouse in that community, which is known as “nexus.” The basic rule is no nexus, no tax.

Rep. Billy Tauzin, a Louisiana Republican who heads the House subcommittee on telecommunications, recently sounded a warning to the industry. Despite the passage last year of a three-year moratorium on Web sales taxes by Congress, and despite the staffing of a 19-member commission on the subject with friends of the industry (something local governments are fighting in court), he said, taxes are going to happen.

In fact, it’s hard to argue that e-commerce is still so new it might be irreparably harmed if buyers of its goods paid sales tax. It’s true that collecting such taxes will be complicated. Since sales taxes are imposed separately by state, county and city governments, figuring out the rate is not easy. And where do you impose the tax — on the address of the buyer or the “ship to” address?

But the fact is computers can deal with complexity. My wife, who writes software for a major transaction process, finished a project in that area a few years ago. Her company hadn’t been charging sales taxes on its transaction processing revenues, specifically because of the complexity. It was paying the taxes but it wasn’t collecting them from merchants. My wife’s software captures those revenues, and my guess is such software can be adapted to general transaction processing as well.

Before a solution is imposed on us, let’s talk about it seriously.

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