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For Immediate
Release November 21,
2000
For
Further Information, Contact: Paul Gessing, Pete Sepp, or Jerry Terry (703)
683-5700
As E-Tailers
Gear up for Holidays, Study Says New Internet Tax "Grinches" Could Doom
Future Shopping Seasons
(Alexandria, VA) — As
the traditional beginning of the holiday shopping season approaches, a
study released today by the 300,000-member National Taxpayers Union (NTU)
has identified several unresolved tax issues that could threaten the
fastest-growing holiday retail sector — online commerce.
"While the ongoing
decline of many dot-coms makes this season essential to their bottom
lines, government’s tax grinches could make future holiday shopping a lot
less merrier," said study author and NTU Policy Associate Paul Gessing.
"Within the next three months, Congress could make choices that will
affect Internet taxation and the Information Age for years."
Gessing contends that
upcoming legislation to extend the federal moratorium prohibiting
discriminatory state and local Internet service taxes will serve as a key
indicator of how other online tax issues, such as applying blanket sales
taxation to e-commerce, will be resolved. The problem, the author argues,
is that lawmakers may be proceeding from flawed assumptions about Internet
taxes:
- While state and
local officials complain about "millions in uncollected sales taxes"
from online vendors, the actual shortfall of $525 million amounted to
only .06 percent of all 1999 state and local tax receipts. The growth
of Internet commerce firms has contributed billions in corporate
income, property, personal income, and other tax revenues to state
coffers — overall, state and local receipts are up 30% over the past
five years.
- Although state
lawmakers and governors argue that their plan for a "Streamlined Sales
Tax" would not create "new" taxes on the Internet, the scheme would
dramatically expand states’ existing powers. It would create a
defacto national sales tax imposed by a state-run cartel that
would impinge on consumer privacy, destroy healthy interstate tax
competition, and resurrect the byzantine trade policies that prevailed
under the Articles of Confederation.
Gessing’s study
concludes with an evaluation of Internet tax policy options for
Congress:
- Maintain the
Status Quo — States already have the ability to tax items
purchased over the Internet when the buyer and seller are both located
in the same state or when the seller has a significant physical
presence in the state. This base for taxation needs no
expansion.
- Exempt
E-commerce from Sales Taxes Nationwide — This step, which would
probably require federal legislation, could be challenged in court if
enacted because it represents the "flip side" of the Constitution’s
Commerce Clause impediment to a state-run sales tax cartel.
- Strengthen
"Nexus" Rules — This proposal, introduced as legislation in the
106th Congress by Sens. Gregg and Kohl, would clarify and
codify the circumstances permitting sales taxes outlined above, in
order to end political wrangling and establish a stable tax
climate.
- Adopt
Origin-Based Taxation — Instead of establishing "nexus" rules,
Congress could simply call for the same in-state tax system and tax
rate to apply whether an item is purchased face-to-face or online.
This plan could face opposition from "technology-poor" states that
would resent seeing their residents pay sales taxes to other
states.
"Many politicians feel
the urge to ‘do something’ about Internet taxes, but that should be no
excuse for a massive expansion of sales tax collections that also
undermines free-trade federalism," Gessing concluded. "Leaving e-commerce
alone may be the best option for the future of our economy."
NTU is a non-profit,
nonpartisan organization working for lower taxes, less wasteful spending,
and accountable government at all levels. Note: Gessing’s study,
The Race to Cyberspace, along with information regarding Internet
taxation, is available at www.ntu.org.
-30-
Read NTU Policy Paper
103
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