Copyright 2000 Federal News Service, Inc.
Federal News Service
May 16, 2000, Tuesday
SECTION: PREPARED TESTIMONY
LENGTH: 1074 words
HEADLINE:
PREPARED TESTIMONY OF MARGARET AND RON HONAKER
BEFORE THE
HOUSE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON OVERSIGHT
SUBJECT - TAX IMPACTS TO ON-LINE SMALL BUSINESSES
BODY:
We currently own or maintain 51 web
sites, while I am still a full time cosmetologist. Ron and I would like to
.provide some thoughts about the implications of adding more taxes to the
Internet starting with a little background.
Currently, my daughter,
Heather, would like to own her own beauty salon, but it appears that the malls
management companies do not favor the Mom & Pop shops. Their first question
seems to be "how many salons do you have in your chain?" Now, these mall
management companies in our area are managing most of the commercial strip
centers and applying the same policies to the Mom & Pop shops, driving any
start- up businesses to the Internet. So, we went to the Internet.
To
increase my business as a stylist, I found that a single page competing with the
other 500 million web pages out there would not work. So we built our own
community service, web search engine for the beauty industry. We provided FREE
pages to every one of the 250,000 salons nation-wide, FREE Pages to the 1,200
beauty-related suppliers, and FREE listings for all beauty professionals. Thus,
creating a one- stop place to find beauty-related information for both the
public and the beauty professionals. How could this site be taxed more?
Therefore, I have asked Ron to assess the effects of any additional taxation on
our web sites.
Ron-
We are in one of the most exciting times in
history with the Internet. Things are advancing so quickly, but change can be
seen as opportunity to some and down right scary to others.
Margaret has
become a very powerful listener to the many clients she has and they tell her
they do not want another tax. Well then, who would want more taxes? I don't
think politicians would more taxes in an election year. Big business, a most
likely YES. Or, how about the small towns in America with an eroding tax base?
YES, they are very scared, and rightfully so. But appears they want to do the
easy thing, just put on more TAXES rather than to use the Internet to work for
them:
The Internet already has at least two major sets of taxes. The
front- end taxes and back end taxes. The frontend taxes are being paid on the
profits made by the businesses using the Internet. The back end taxes are the
ones that are the Internet Service Provides (ISP), and they are the ones that
connect your computers to the Internet system. These ISPs pay taxes both on
their communication lines and their profit, passing on the cost directly to the
Internet users. I guess the thought is how can we be taxed the middle? Products
on the Internet can be of two types, Real and Virtual. Real Products are those
items which we have been traditionally been buying everyday and that you can
touch, feel and ship by trucks. Virtual products for sale are newer. They are
the digital stuff, such as music, movies, information and services. Can you
image that we can tax things that do not really exist?
Creating an
Internet tax based on pages, no matter how small, would close the books on
salons4u.com. Even just one dollar per page would mean over
$250,000 in taxes for salons4u.com.
Where salons4u
receives its revenue to support the maintenance costs is by the salons,
suppliers, and beauty professionals that choose to place additional or custom
information to their page. (Service and Virtual Products) Since they are in
absolutely every location in this country, a one-time service base tax seems
easy, but the overhead costs of sending out checks to each of their cities,
counties, and states would be an accounting roadblock.To learn about commerce on
the Internet (e-commerce) and FUN, we started the glowshop.com. A site that we
have items relating to light, such as hats, glow sticks, electroshirts, lights,
glow in the dark vinyl, etc. We have found out how Americans love gadgets. By
the way, less than one percent of our sales are from Missouri residents, which
we collect and pay sales tax to Missouri. Fortunately, we only have to one tax
to pay to the state and they redistribute the correct taxes to the county that
we live in. If we had to pay monthly, quarterly, semi-annually and/or yearly to
thousands of cities, counties and states. Just the stamps and writing checks
would over bearing.
Our forefathers were wise in their judgement about
interstate taxes.
We believe that taxes can be used to raise revenue or
for controlling such things as moving money to charities or slowing down sins.
So if a state places taxes on servers, we will be confused why they are taxing
servers for (revenue or control). I will tell you that people are loyal to lower
costs and will move the servers out of that state to a tax free zone.
Small businesses have the advantage to change quickly and win all the
prizes that come with hard work, but almost always have the disadvantage of not
having research funding available to larger businesses. Additional taxes will
slow the rate of new inventions by individual people.
And, let's not
forget about the not-for-profits and 501s. Like Gateway to a cure that raises
research dollars for a cure for spinal cord injuries. We are very very close to
finding the cure! Additional indirect taxes affect their bottom line
contributions.
Lets have a little fun here with a worst case for
Internet sales taxes. Say a person in an airplane has a mobile
Internet device, or even some new aircraft have Internet connections on board. A
person flying aboard an aircraft over state 1 (tax 1) orders a small gift for a
person in another state. The communication link from the aircraft links to a
communication tower in state 2 (tax 2) and connects to the Internet to server in
state 3 (tax 3) for the glowshop in state 4 (tax 4), the glowshop has that item
dropped shipped from another company in state 5 (tax 5) with its servers in
state 6 (tax 6). The person in state receiving the gift in state 7 has to pay a
use tax, which is a camouflage sales tax. Who knows which and where the
connecting hubs are located.
We, a very small business employ you to
consider the catastrophes that can easily happen to small businesses with any
additional taxes.
While the people applaud Congress for providing the
great economical environment for new jobs in America we have recently enjoyed,
let be known only a very few will want a new job to exist: "Internet Tax
Preparers".
Margaret-
Thank you for inviting Ron and me, so we
could be part of America's government process.
END
LOAD-DATE: May 18, 2000 
