Everything that has to do with e-commerce seems to move at record speed, except for one thing: The decision whether to tax goods and services sold over the Internet.
Somehow, the debate over Internet taxes has dragged on for the better part of the year, with the U.S. Congress’ Advisory Commission on Electronic Commerce taking its time when it comes to issuing a definite recommendation.
However, last week, Virginia Governor and panel chairman James Gilmore came forth with his strongest suggestion yet: No new taxes.
Whether his words will gather widespread support remains to be seen. Some observers have questioned Gilmore’s ability to remain objective on the issue, since his state is home to the world’s most popular Internet access service, America Online.
Still, Gilmore is not the only legislator suggesting a ban on Net taxes. Republican presidential candidate John McCain proposed a ban on Internet taxes as far back as September.
The Great Tax Debate
On the surface, it would appear that both sides in this argument have valid points. Those in favor of taxes point to brick-and-mortar businesses who they say will be at an unfair disadvantage in the marketplace if their online counterparts are not held to the same standards of taxation that they must honor.
Others counter that argument by reminding tax proponents that many of those brick-and-mortar ventures sell some of their goods through Internet Web sites as well. After all, they reason, that is the beauty of the e-commerce revolution: Anybody can do business online.
Supporters of Internet taxes also suggest that Internet businesses have already been given an unfair advantage with the Internet Tax Freedom Act, passed by Congress last year. The Act imposed a three-year moratorium on state and local sales taxes on retail e-commerce, as well as on Internet access taxes.
Just last week, House Budget Committee chairman John Kasich presented a plan to the Advisory Commission that would make the Tax Freedom Act a permanent law.
Various civic voices are speaking up around the U.S., suggesting that a lack of Internet taxation is tantamount to compromising essential city services. For example, Dallas, Texas Mayor Ron Kirk, who serves on the Advisory Commission, fears that local police, fire and other services may lose their funding if Internet sales aren’t taxed.
Critics of Internet taxation claim that the culture has a responsibility to allow the electronic commerce revolution to happen. Every roadblock that is constructed that discourages online business growth is ultimately to the detriment of all consumers, they say.
They may have a point. The U.S. Chamber of Commerce released a survey last week that projects online retail sales to grow by upwards of 500 percent over the next two years, which just happens to run concurrent with the Internet Tax Freedom Act.
Douglas Graham, a partner with KPMG, the firm that conducted the poll of 150 policy makers, company executives and association heads, feels that “we are in a transitionary period right now, one in which there is heightened interest in adopting fair policy.”
With that concept in mind, it is significant to note that more than three-fourths (76 percent) of survey respondents said that for purposes of taxation, remote electronic transactions should be treated the same as catalog sales. Further, 56 percent thought a sensible legal, fiscal and regulatory framework that minimized government regulation could be adopted for the Internet.
Translation: No Net taxes, government should keep its hands off of e-commerce, and this is not the time to interfere with the biggest cultural movement since the industrial revolution.