Internet Taxation – A Debate

Source: The incredible internet

Con

• Complicated tax system

– Different items subject to sales/use tax depend on each jurisdiction– Numerous and varying definitions– High compliance cost

• Negative impact on the growth of e-commerce– Extra burden on customer: paying tax in addition to existing handing and shipping costs– Fairness: Businesses receive no benefits or services from a jurisdiction when they are located elsewhere. –Ability of consumers to buy goods and services from merchants located outside the reach of their own government’s taxing authorities –The buying and selling of intangible “goods” from external (or non-domestic) sources

• Potential diminishing fiscal autonomy of States and Local Governments due to necessary simplification and standardization of tax system

States With Sales/Use Tax 45 States and District of Columbia

Localities With Sales/Use Tax

7,500

Rationale for “No” Internet Taxation

• Our all-in marginal tax rate is 40%

Source: "Does It Pay, at the Margin, to Work and Save?" by Laurence J. Kotlikoff and David Rapson

How much can you Tax?Reduce Taxes

– http://www.youtube.com/watch?v=6FBWwAC3lPk&feature=related

Tax Freedom Day – keepproducing.org– http://www.youtube.com/watch?v=z-HGQj_pBag&feature=related

Commercial – Extend moratorium– http://www.cfif.org/htdocs/legislative_issues/federal_issues/hot_issues_in_congress/internet_taxation/legis/f

ederal/internet/tax/commercial.html

Reuters: Debating the Internet Access Tax– http://www.youtube.com/watch?v=eJjz0AFxnWo

Fox News: No Internet Taxes– http://www.youtube.com/watch?v=4qLvfmMHoA8&feature=related

Tax Freedom Song– http://www.youtube.com/watch?v=bjy8KWsPtDE

Real debate on the net– http://www.youtube.com/watch?v=96JXTWttOwU

Your Money: Online Sales tax– http://www.youtube.com/watch?v=G47VR2JKL3Y&feature=related

Congress debating internet taxes– http://www.netcaucus.org/events/2007/taxation/video.shtml

Internet Tax Freedom Act• Internet Tax Freedom Act was introduced on October 21, 1998• Has been extended by another seven years, and will expire in 2014

if not renewed.• Prevent states from either applying sales taxes to categories of

electronic services or goods with no physical counterpart or applying discriminatory sales taxes on Internet commerce that do not, for example, apply to catalog sales.

• Internet – A “global free trade zone”• “In my view, the Internet has the most profound liberating potential since

Gutenberg’s invention of the printing press, which allowed the mass distribution of ideas, thoughts and information. This legislation is a step forward to keeping the Internet free of unfair, discriminatory taxation policies that would impede its future growth as a source of commerce, education and information.”

» U.S. Senator George Allen (R-Virginia)» On the introduction of S. 777,» Internet Tax Nondiscrimination Act» April 26, 2001

States reliance on sales tax revenue

Source: Legislative analyst’s office (CA): http://www.lao.ca.gov/2000/013100_inet_tax/013100_internet_tax.html

World Internet Statistics

• Electronic commerce has become a critical engine for economic growth

• More than 27 million small-business owners will potentially be affected by Internet sales tax

Source: http://www.internetworldstats.com/stats.htm

Internet Usage Statistics

Source: www.emarketer.com

Total US Retail Sales (Online)

Source: Census Bureau, Department of Commerce

U.S. retail ecommerce sales for the fourth quarter of 2008, adjusted for seasonal variation, but not for price changes, was $31.9 billion

E-Commerce Sales

Source: www.emarketer.com

Forecasted E-Business Growth

• Enhances future growth and strategically position the nation to compete in the global economy

• Americans can have affordable access to the Internet and promotes further broadband deployment in rural and outlying areas that may lack high-speed Internet access

• Gateway to entrepreneurship, regardless of race, income or neighborhood.- Higher taxes on technology will stifle the ability of small businesses to operate, grow, and create new jobs.

Rationale for “No” Internet Taxation

Rationale for “No” Internet Taxation

• Impede consumer demand for access, cripples innovation, creativity and competitiveness

• Multiple points of consumption – makes it more difficult for independently administered tax agencies to identify, monitor, and resolve international “tax” transactions.

• Ability of consumers to buy goods and services from merchants located outside the reach of their own government’s taxing authorities

• The buying and selling of intangible “goods” from external (or non-domestic) sources

• Internet sales tax could encourage exporting jobs to different states

• Enforce vital tax policy initiatives and decisions independent of trade and investment considerations.

• Globalization growth will be curtailed

• Applying a provincial average sales tax of 14% to all Internet sales in Canada would reduce the number of online buyers by as much as 44%.

Rationale for “No” Internet Taxation

Proposed Solutions

• The National Sales Tax -- Alternative One– Under a national sales tax option the federal

government would determine the rules and tax rates for all domestic electronic commerce.

• Freedom of States -- Alternative Two– The "Freedom of States" policy would give taxing

authority, and the right to regulate ecommerce, to the individual states.

• Internet Tax Equity Policy -- Alternative Three– The third option proposed would involve allowing the

states to collect taxes on all goods,regardless of the method of transaction, under a federally-regulated tax policy.