In 1998, retailers sold nearly $8 billion goods and services to consumers over the Internet, or on-line, while business to business online commerce was valued at an estimated $17 billion. Business weekly magazine (June 22, 1998) predicted that Internet commerce would increase the U.S. gross domestic product (GPD) by between $10 billion and $20 billion annually by 2002. They argue that imposing new Internet taxes, at least during the next few years, would bog down the Internet’s growth and stunt a sector of the economy that is currently flourishing. For now industry leaders say it is important to build consumer confidence in the Internet by refraining from imposing taxes or other regulatory barriers that may deter people from shopping on line. Internet retailers must charge a sales tax only if the company has some kind of physical presence, such as a warehouse or an office, in the state where the customer is buying the item. Otherwise, companies do not have to add the sales tax to the purchase price.
In 1997, Sen. Ron Wyden introduced the legislation that developed into the Internet Tax Freedom Act. The ITFA called for a moratorium of approximately six years on the taxation of Internet transactions, access, or communications. Wyden called the moratorium a time out period that would give the Internet the opportunity to continue to grow. The goal of the legislation was to give lawmakers and Internet industry time to figure out a national taxation policy. Many businesses, he says, would be scared away from the Internet if they were burdened with the responsibility of monitoring and enforcing a thicket of conflicting sales taxes imposed by various states and municipalities.
Indeed the potential loss of tax revenue for states and municipalities is one of the biggest concerns. Unlike the federal government, which does not impose a sales tax, states are heavily dependent on sales taxes to raise revenues. Sales taxes comprise 49% of tax revenues collected by the states, while state income taxes comprise only 33%, according to the federal statistics. Critics of the ITFA say that if states municipalities are not permitted to collect taxes on Internet transactions, they could lose much needed revenue that helps pay for government services such as highway construction and public education. Others say that not collecting sales tax from the Internet is inherently discriminatory since businesses that do not engage in electronic commerce must still charge sales taxes. It is fundamentally unfair that Main Street retailers should be required to collect a sales tax while Internet and mail order vendors can sell the same goods and not be required to collect a sales tax, argues Utah Gov. Michael Leavitt. Once consumers and businesses become accustomed to tax-free shopping on the Internet, there may be a backlash against attempts to impose sales taxes when the moratorium ends.
Government should impose a tax on all items sold over the Internet. The simplest and easiest to implement, would be a flat rate that applies to all states. I think that if there is no tax collected from these sales, each state will start to suffer from lose of revenue that helps pay for some of life’s necessities such as roads, education, and law enforcement. I think that Congress knew that there was a problem and by putting a moratorium, it would give them time to come up with some ideas. But by the time they come up with ideas it will be to late. If they do enforce a tax on Internet sales, people will either pay it or start going back to Main Street businesses, then we have a problem because Internet will no longer have the same sale volume. If they do not enforce a tax, I think that the Main Street businesses will either shut their doors or go to the Internet for their sales. In the latter event they will probably still shut their doors and move to an office building. Why have a huge store that they no longer need when they can run everything from a computer. I think government should put a tax on Internet sales.
Coy, Peter. You Ain’t Seen Nothin’ Yet. Business Week (June 22, 1998) p. 130
Denver Post. Then Internet Tax Dodge. (March 2, 1998) p. B6
Gleckman, Howard. The Tax Man Eyes the Net. Business Week (April 6, 1998) p. 131
Gruenwald, Juliana. Moratorium on Internet Taxes Advanced by House Pannels. Congressional Quarterly Weekly (October 11, 1997) p. 2475
Hof, Robert; McWilliams, Gary; Saveri, Gabrielle. The ‘Click Here’ Economy. Business Week (June 22, 1998) p. 122