Slashdot Mirror
New Criteria for Net Sales Tax Proposals Released
jezor writes "For those of you interested in the issue of sales (and other) taxes and how the Internet affects their calculation and collection in the U.S., you may wish to look at the new criteria for evaluating taxation proposals released today by the Advisory Commission on Electronic Commerce. Courtney Macavinta of CNET has an article on the new release."
I find it extremely discouraging that this article has been posted on SlashDot for several hours, but only a handful of people have responded. And of the responses that have been posted, practically none indicate that the writer actually read the proposed criteria.
This is extremely serious--it will affect the livelihood of every SlashDot reader, and it will have a major impact on the continued growth of the Internet. Why? Because these criteria, and the proposals that will be evaluated, will determine how the Internet will be taxed. And if the Internet is taxed there will be significant shifts in the E-conomy (to coin a phrase) as Internet businesses position themselves to avoid collecting sales taxes. If the state of California, for instance, enacts stiff sales taxes on e-commerce transactions, businesses will leave the state of California. If you're a network support tech in California, that affects your job prospects.
What is also discouraging is the complete cluelessness of the government officials involved. They have not yet, evidently, realized the complications of what they're trying to do. I seriously question whether any of these people have done any kind of empirical study of their existing sales tax collections to determine if they have any glimmer of hope of collecting a dime. The rise of e-commerce seriously challenges the basis for sales tax--since sales tax has always been assessed on tangible, physical assets at the point those assets are transferred to the end user. Non-tangible purchases aren't taxed by practically anybody--only a very few states have tried to tax services (such as attorney's fees, software consulting, and other professional fees) and they generally have discovered that the cost of administration and collection exceeded the new tax revenue. (Pennsylvania, for instance, abandoned the services tax in 1998.) You can tax an e-commerce sale when it is essentially identical to mail order: place the order online, deliver the goods via UPS. In that circumstance the seller can identify the destination, and generally can identify the taxing jurisdictions (although not always). But what nobody is considering is the exploding business in software that is delivered across the Internet.
Yes--SlashDot is heavily tied to the Open Source movement, so suggesting that software should be anything but free is a heretical viewpoint. Call me a heretic, but commercial software will only exist over the long term if there is money to be made creating it.
As we have all discovered, there is no reason in the world to create a tangible product in order to ship software. Want to buy Microsoft Office 2002? Just enter your credit card information online and download the install set from Microsoft (a mere 2.3 GB of code!). It may seem a stretch today, but lots of software companies are embracing that model. My own company will move to download-only distribution shortly: we sell a couple of small applications for specialized markets (horse show management, and graphics for special ed teachers), and the time and expense necessary to burn CDs, package them, box them, and take them to UPS eats a considerable portion of a day.
So somebody gives me a credit card number, and an address in the Cayman Islands. How am I supposed to know that the individual, in fact, is in Bowie, Maryland? Or what's to prevent some entrepreneur from setting up an "anonymous download" site, where you can use the site as a proxy to purchase software from another site?
"The Internet changes everything" has been repeated so many times in the past year that it is already a tired cliche. But it is true here--the Internet effectively has to mean the end of sales taxes. It will cause upheaval in government--but it is inevitable. Any other conclusion requires driving e-business offshore.
It's discouraging that the tax authorities don't realize this. And it's discouraging that nobody on SlashDot seems to care.