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Ask Slashdot: e-Commerce, Taxes & Private Transactions.
thal asks: "With the apparent inevitability of taxes on transactions over the web, what exactly will/should be defined as private transactions that are not to be taxed? Obviously, if you buy a gadget from gadgetseller.com with your credit card, you will be taxed. But what about baseball cards sold on Ebay? What about a garage band who asks you on their website to send in a $5 bill for a copy of their CD? These types of sales between two people have historically been, at the very least in practice, exempt from taxes, but will/should sales on the internet automatically be considered taxable?"
With the apparent inevitability of taxes on transactions over the web, what exactly will/should be defined as private transactions that are not to be taxed
This is not an easy answer as it squarely hits the contentious questions of sovereignty, juristiction, and individual beliefs of the role of governments. Firstly, some background. As a starting point, I'd recommend people have a gawk at understanding the relationship between taxes and economic activity. Basically as economies become more sophisticated, activities move from private endeavours (e.g. subsidence farming) to measureable activities (ie tracking the cashflow through the national accounting systems) to take advantage of the legal framework (contract law, safety standards, etc). This is one factor in a country's GNP, eliminating the inefficiencies in bartering by moving to a currency based transaction system with improved liquidity and retained value. To see the effect, just look at the economic collapse of Russia which has basically reverted to bartering goods between factories and inviduals. The original US constitution assumed an informed agreement between equal sovereign individuals (private property rights) which have been supplanted and augmented by federal commerce codes which support legal contracts for inter-state and international trade.
Now with the internet, there are already taxes on the seller (income tax, sales tax, incorporation, etc). What is worrying some groups is that the internet provides an alternative mechanism to minimise a consumer tax collected at point of physical sale. This is a particular concern with new taxes such as the forthcoming GST in Australia which wants to include the sale of secondhand goods within the tax base (previously excluded as it was too difficult to calculate an equivalent value in dollar terms). The issue is rather murky (OK downright opaque) as the internet is a half-way network caught between the concept of private intranets (original federation of AARNET servers) and a regulated public carriageway (telcos, radio, ISPs, etc). Hence there are multiple juristictions (not to mention different global standards) and inappropriate legal precedences with favor one party (usually the incumbents).
To answer your question, the Internet will be taxed when the overheads of regulation to curb the excesses (e.g. Spam, fraud, trust systems, etc) shifts the Laffer Curve such that there is a net increase in beneficial economic activity. The most appropriate mechanism is still yet to be determined, it may well be the governments insist that the credit card companies collect a compulsary levy which is refunded through a later rebate, it may be that governments insist that all transactions pass through a public key infrastructure which collects a small fee for each access, it may be that they charge the telcos a network volume fee leaving it up to companies to recover (ie pass on the costs) to the actual consumer. You actually might be surprised at how many "invisible" taxes and charges there are. I haven't seen any authoritive studies but some people speculate that 40-50% of the US GDP flows through the public sphere in some form or another (federal, state, municipal taxes/charges).
Governments naturally want to broaden their tax base to encompass as much economic activity as possible, efffectively to provide "consumer protection" in return for a slice of the action. When this becomes too onerous, you will see the rise of alternative "currencies" for local exchange, use of other intangible non-taxable entiries (frequent flyer points) and the favorite game of controlled multinational corporations for transfer pricing (ie shift high visible costs into tax heavy juristictions while assets are moved into tax havens). The internet has just opened up a huge bottle of worms as now similar practices are available to the individual with some savvy
In short, you can bet your bottom dollar that international governments will move to protect their interests. Currently there is a hands-off policy as, despite the hype, the internet only accounts for a tiny portion of world economic activity. This will change when it starts being at least 10% of all purchases. The only question is in what form it will take and whether the cost is worth the benefits. It is up to all the public interests groups/institutions to carefully scrutinise any proposals to ensure fairness and that any taxes are spent to support the appropriate activity.
LL
I'm not sure what other people feel is the philosophical basis for taxation. It seems to me perfect taxes are basically usage taxes: what you pay exactly matches the benefit you get. For example, rich people should probably pay for for police protection because they have more to lose in a theft. Another philosophical basis might be to "adjust" society to be more like one would we like to live in (i.e. we don't like others around us to suffer in poverty). Combining those two mean we'd prefer gasoline taxes to toll roads, for example (we don't want usage toll booths every mile, and gasoline taxes approximate the benefit AND encourage lower pollution etc.).
For example, if I go to the local store and buy something, the local government probably has the right to levy a sales tax. It maintains the roads I use, it provides police protection, etc. However, when I buy from the Internet, the local government is much less involved. Does my city or state government have the right to tax transactions at the same rate as before? (BTW, the federal government is much more involved, i.e. tracking hacking, fraud, and the lot, but they don't see the money).
Currently, taxes are pretty much a blunt instrument. In the above example, much of what I pay for in the sales tax isn't related to the transaction, but the theory is that it "correlates". Richer people benefit from government services such as fire protection on more expensive homes, and they tend to buy more. Therefore, we think it ok to charge a "fee" for the transaction even though the "benefit" as nothing to do with the transaction.
From this perspective, the government currently subsidizes Internet transactions. The FBI tracks down credit card fraud, which effectively lowers your credit card fees, but you don't pay for that protection. Likewise, shipping your books from Amazon.com creates wear-and-tear on the roads, but you don't pay for that.
Personally, I like the idea of a tax-free Internet zone precisely because taxes across International borders gets difficult. For example, the company I work for sells a $39.95 product that we've sold over the net to Europe, Canada, Asia, South America, etc. We simply cannot handle a country-by-country tax problem. It would cost much more than $39.95 to sell a single copy to Venezuela, for example. Direct Internet taxation will stifle lots of business activity.
As a consequence, I'd like to search for other ways to indirectly tax Internet transactions. A fuel tax springs to mind (which I like for other reasons) to tax shipments. A credit-card tax would also be a good thing (since the government is already subsidizing credit card transactions anyway). In other words, rather than stifle all the small businesses which aren't equiped to deal with the taxes, why not shift the burden onto the big companies that can?
Anyway, those are my thoughts.
A number of basic precedents will guide the hand of the government in taxing internet sales...
1. A number of historic decisions exist that state that the Federal government cannot restrict or otherwise regulate interstate commerce. These decisions actually hampered the passage of antitrust acts around the turn of the century... the origins of this lie in early American history, when state-to-state trade was taxed-- the Antifederalists resisted any movement to give the Feds power to regulate in this manner.
Because of this, only States have been able to tax sales, and only those within their own state. Thus, it can be expected that internet sales will follow the course of mail-order. You'll only be taxed if you are in the same State as the provider of the goods.
2. As far as internet auctions, I have no idea. I don't _believe_ (not exactly sure here) that auction items are taxed at physical auctions, so it can be expected that the same laws will apply.
The easiest way to predict in what way things will be regulated in the future is to look at the past. It is rare for judges to create new precedent, even when dealing with new situations, because they are expected to administer justice on a solid basis. It can be expected that rather than attempt to create a new system, the legislative and judicial bodies of this land will merely apply old law.
Also, why is everyone under the impression that internet sales are so revolutionary? They are, in effect, only an extremely fancy version of mail (or phone) order, and will likely be treated as such. Granted, the internet and its ramifications are astounding, but in this case, not much has really changed...