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Release Say "No" to the Internet Tax Hackers Released by C. Wayne Crews on 11/10/99 of Competitive Enterprise Institute |
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| Statement of C.
Wayne Crews Director of Competition and Regulation Policy Competitive Enterprise Institute at E-Freedom Coalition News Conference November 10, 1999 The nation's governors and state and local officials would love to impose a national system for collecting sales taxes on the Internet. And they are proposing that the Advisory Commission on Electronic Commerce, which will present recommendations to Congress in April 2000, adopt their views. The existing temporary moratorium on Internet taxes, initiated by the Internet Tax Freedom Act, forbids new Internet taxes on sales and access. A proposal released today to the Advisory Commission on Electronic Commerce from the e-Freedom Coalition, of which the Competitive Enterprise Institute is a member, would permanently ban new Internet taxes as well as end certain taxes on telecommunications infrastructure to aid development of the Internet. What's at stake in the e-commerce taxation debate? If you're an e-commerce entrepreneur, your website is in danger of being hacked -- Not by some enterprising teenager, but by politicians you didn't elect. Your site may be corrupted, not by nefarious computer code, but by tax code. The fundamental principle involved in disallowing Internet taxation is recognition that there should be no taxation without representation. The e-Freedom Coalition proposal issued today (http://www.e-freedom.org/) seeks to ensure that no state collect taxes from firms that have no substantial physical presence within their borders. The advocates of e-commerce taxation readily admit there are 7,400 taxing jurisdictions and openly ask for Congress to "require remote sellers without a physical presence to collect" taxes. This frontier industry's growth is vastly more important than tax hackers getting new money in an age of surplus. Perhaps the biggest threat to the Internet is tax hackers who seek to jettison the principle of no taxation without representation. Government officials seeking to impose taxes and "level the playing field" between taxed in-state businesses, and untaxed Internet businesses, exaggerate their plight. Most online sales are from business to business, which pay no sales tax anyway. Also, financial and travel services - very popular on the Internet - are not subject to tax. Moreover, new businesses are sprouting, providing needed jobs and income taxes, all over. The tax hackers' schemes would be incredibly complex. Who will be liable for taxes? The consumer, the merchant, the consumer's ISP, or the merchant's Web host? Adding to the complexity, all of these parties may reside in separate states. Yet it's even more complex: New kinds of associations are constantly forming, such as merchant affiliations, auctions and virtual storefronts. We don't want such innovations morphing and contorting to accommodate thousands of tax jurisdictions. And speaking of relationships and innovations, one of the most important needs is the development of privacy tools. Invasive taxation will harm emerging privacy innovations like anonymous digital money and encryption. Tax hackers claim that computer software would makes it easy for all states to collect. This claim is clearly untrue, but that misses the point. No matter how easy, taxation without representation is fundamentally unjust. Nor is it even desirable to consider a simple, uniform tax. A simple tax is a simply raised tax. Irrational tax policies are common. Therefore, we need to ensure that there always exist competing tax jurisdictions. Entrepreneurial flexibility in moving capital to escape the taxman provides a constraint on government overreach. A uniform system makes it simple only for multiple states to stake claims and propose new taxes. It can never make life simple for consumers. Main Street businesses who fear competition from untaxed Internet firms should realize that the tax hackers do not represent their interests. Today's "bricks and mortar" Main Street firms may be the "clicks and mortar" innovators of tomorrow. Many main street stores are already online, many are embracing online auctions, and new innovations like Amazon's z-Shops and Iconomy's storefront's show real promise for aspiring Main Streeters. If tax-seekers win, though, such firms may be bound to Main Street forever. Moreover, if new taxes are applied to the Internet via software, such taxes will likely work their way down to Main Street Business as well. Policymakers should stop tax hacking before it starts. James L. Gattuso VP, Policy and Management Competitive Enterprise Institute 1001 Connecticut Ave. NW, S. 1250 Washington, D.C. 20036 (202) 331-1010 x. 226 | |
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