Hot on the Web
Lost in Cyberspace
Online San Diego
Feature Articles
Book Reviews and Reading Diary
Music Reviews
Favorite quotates
Contact Me

Lost in Cyberspace

Why exempt the Internet from sales taxes?

This article was originally published on November 9, 1999 by SignOn San Diego and Copley News Service.

The biggest political issue involving the Internet these days revolves around taxes. Or, more precisely, the lack of them online.

Computer and consumer advocacy groups have teamed up with the libertarian community to declare the Internet off-limits to the sorts of transaction taxes businesses normally pay in the real world – namely, state and local sales taxes.

The argument behind this is that the economic promise of the Internet is so great that it is vital we nurture it to its full potential.

So far, this has been one of the few issues a Republican Congress and the Clinton administration have managed to agree on of late.

Which leaves state and local governments a bit less than thrilled, especially given the current forecasts that predict an increasingly large chunk of the American economy will move online.

For many states, sales taxes represent one of the largest sources of revenue. Local jurisdictions, too, often rely on sales taxes to pay for everything from libraries and schools to sewer systems and roads.

For years, most mail order businesses have managed to escape sales taxes. Unless you're ordering from a firm in your own state, you generally aren't charged sales tax by the merchant. The states haven't much cared for this arrangement, either, but even if collecting the sales taxes could be mandated (and whose state should collect – the seller's or the buyer's?), enforcement would be a nightmare.

Retail business on the Internet promises to soon dwarf that of the mail-order industry, meaning that state and local governments will see less and less income from sales tax as commerce moves from the physical world to the digital version.

All of which leads to the question: Why should the Internet be exempt from sales taxes?

Does a business selling books over the Internet really create less demand for public services than a physical store? Do not its employees still require police and fire protection? If the manager at calls 911, does she not still expect an operator to pick up the phone?

Of course, online businesses do pay all sorts of taxes and government fees that other businesses pay: payroll taxes and property taxes and permitting fees and who knows what else.

So why this weird fixation on sales taxes?

Other than the fact that people who purchase merchandise or services over the 'Net have gotten used to the fact that they don't have to pay sales taxes, it's hard to find any concrete reason the 'Net should be exempt. If the commercial potential of the Internet is as great as its proponents claim because of the ease of shopping by computer, then it's hard to see how a 7 percent or 8 percent sales tax is going to deter folks from buying online.

The fact remains that the states and local governments are expected to provide certain services, and that the people who perform those services expect to be paid.

The idea that online commerce shouldn't pay its fair share in providing these services just doesn't seem very compelling.

(The best place I've found to search for information on this issue is the Computer Professionals for Social Responsibility Web site search engine. Find the arguments against Internet taxes at the Hands Off the Internet Coalition. You can also find a paper from the National Association of Counties supporting Internet taxes.)