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New Federal Government Stance on Internet Taxes
Aatif writes, "
According to this story on the Washington Post, President Clinton is softening his stance against Internet taxation. Mr. Clinton said the federal government would not interfere with individual states collecting sales taxes on goods sold over the Internet even though Congress is still under a tax moratorium." From what I've heard, my state (Maryland) and all the others are thinking up ways to tax Internet sales. It's only a matter of time before they figure out how, like it or not.
Not taxing internet businesses is effectively a subsidy. It can breed a less than efficient market place. For example, let us suppose that dot-com, company A, in PA has no sales tax to contend with. While brick-and-mortor, company B, has a 5% sales tax. This means that company A can sell for, say, 3% less even though they're enjoying 2% more profits (and perhaps 1% less efficient).
The fact of the matter is that sales taxes comprise approximately one third of state sales revenues. When, and if, internet sales replace brick-and-mortar sales, this is going to be a major issue. The state governments are either going to need to reduce services (and/or improve efficiency) by 30%, or increase other forms of tax revenues. They might decide to tax brick-and-mortars more to make up for the lost revenue. Meanwhile, the government is effectively GIVING that Dot-Com a little less than 5% on each sale it makes.
Put simply, not taxing the internet is asking for inefficiency. While you may be correct, that Dot-Coms have to contend with shipping costs on high-dollar/low bulk items, this is rather nominal. Furthermore, Brick-and-mortars have increased overhead (e.g., retail presence, real estate, liability, etc)...all which ARE higher than shipping costs on most items sold over the internet.
If Dot-Coms are offering a better service (e.g., lower prices as a result of lower overhead, better customer service, better inventory, etc) to customers under the same tax footing, I have no problem with dot-coms gaining market share (frankly, I think most are offering inferior service for the time being). But if you, the dot-com, have shipping lag-time, increased costs, and many other problems, you are offering your customers a worse service than those brick and mortars. If your only area of differentiation is price savings for the consumer, and this is strictly (or even mostly) the result of tax exempt status (read: subsidy), then YOU don't deserve to be in business (This has little to do with "fair", it has to do the aggregate economic effects).
Taxation funds the activities of government. In my country (Ireland) the main areas are Education, Health and Social Welfare. These alloacations are decided by the representatives of the people in the annual budget. Within certain bounds, the necessary tax rates are decided based on the amount of money which the legislature want to spend. I believe that the tax take should be fairly spread amongst those who are able to pay - this is easier to see when talking about income tax, but also applies to sales taxes and the like. In certain situations it may be decided to give an exemption to a certain class of business or area of society. This is usually for one of a small class of reasons: - The cost of regulation and collection would outweigh the money received (or make the collection too inefficient to be worthwhile) - A tax break acts as a form of subsidy for a socially worthwhile activity. For example, the income of artists is tax-free in Ireland, since art/culture is seen as something that society should support. - A tax break is necessary to encourage economic development, increasing employment or supporting a sluggish industry or economy. In this case, the 'trickle-down effect' ensures that society gains more than it loses in fore-gone revenue. I am unconvinced that any of these situations applies to the (now booming) on-line economy. Even if tax breaks are allowed to encourage the development of on-line commerce, these should be fazed out over a period of time. The point has already been made that on-line sales mean lower sales off-line. If the same tax-take is collected from off-line retailers (with no input by on-line sales) the percentage tax on off-line sales increases, making them even less attractive to customers. This would seem to be an unfair distoortion of the market. Incidently, if on-line sales are allowed to be tax free, I can see a situation where retailers will install terminals in their brick-and-mortar shops to make _all_ sales technically be 'on-line'.
I'd rather go down in familiar flames than be lost in that endless blue.
I am starting an Internet business, and I would like to know what services states I don't live in are going to offer me in return forcing me to be a tax collector for them? Nothing. How much do they plan on reimbursing me for the costs of collecting the taxes? Nothing.
I keep hearing about the so called advantage no taxes gives me, but what about the advantages a local merchant has over me? His customers can leave the store with the product today. Mine have to wait at least a day for shipping, longer if they don't want to spring for overnight air. His customers don't have to pay for shipping, mine do.
Then there's the biggest advantage of all. SERVICE. There is no way in hell I can offer the kind of service a knowledgeable salesperson, that is speaking directally to a customer, can offer. His customers can get an answer in seconds. Mine have to e-mail me and wait for a reply.
Businesses with good customer service have nothing to fear from the internet. Businesses that hire high-school dropouts that can barely run a cash register are the ones in danger. Any local merchant who can't compete with the advantages he allready has desreves to go bankrupt.
Quemadmodum gladius neminem occidit, occidentis telum est
The key to making this model is that the police will then only enforce the law when it is politically expedient or profitable. The trouble with that is it can lead to a police state, in which the police can harrass the general population on a whim and then back it up with the huge numbers of ridiculous laws we've got.
I used to live in New Jersey, and people from NYC would come there to shop, because the taxes were lower. Well, someone in New York government came up with the bright idea of sending cops into New Jersey mall parking lots and searching for New York plates. Later they would send threatening letters to the people who were shopping in the New Jersey stores saying, "You still owe New York sales tax and you'd better pay it!"
This, of course caused friction between NJ and NY, and was eventually dropped (I think, I haven't been back in a while, it was back when Florio was governor of NJ.) Of course, the original reason that interstate commerce was supposed to be exempt from taxation was to help keep the country united so you wouldn't have a bunch of little wars between individual states, and its worked pretty well for years (well, except for a few little altercations in the past.)
It is idiotic for the Federal government to allow individual states to tax the Internet this way, because the Internet is a national and International resource. The Federal government is supposed to be responsible for things which fall into the catagory of national. Personally, I don't think there is any pressing need to tax Internet commerce, but with all the hype about the Internet goldrush it is definitely going to happen. The rational way to handle it is on the national level, not the state level.
Of course, I'd rather we didn't get these wonderful new taxes, but then I'd rather Harry Browne would be the next president rather than George Bush or Al Gore.
All the creatures will die, And all the things will be broken. That's the law of samurai. (Jubai, 1605)
But many traditional retailers say they suffer an unfair disadvantage by having to add a sales tax to their goods in the 46 states that impose such a levy. Many governors and local officials fear a deep loss in revenue if online sales siphon business away from traditional merchants.
Further complicating the issue is the existence of more than 6,000 sales tax jurisdictions nationwide, with widely varying rules.
So basically what will happen is that different states will end up with yet another set of taxation rules that apply to internet sales. Seeing as how internet sales will generally occur across state lines this will result in vast amounts of confusion as different states attempt to try to apply different laws, and people and businesses will lose out from trying to comply with this patchwork of regulations.
Clinton is obviously in favour of such a tax, and is trying to get enough states to enact it so that it becomes more and more difficult for the advisory commision or his successor to keep the moratorium in force.
I don't see why the net should be exempt from tax. Just because the medium in which sales are made has changed shouldn't change everything else. Not taxing net sales, will only mean longer, higher taxation on non-net sold goods