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Should Purchases Made Over The Internet be Taxable?

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            Using the internet has become a popular way for many people to shop and one of the main reasons that it remains popular is because customers don’t have to worry about paying taxes on the items they buy. By taxing internet purchases, many people will refrain from this type of shopping, so in order to continue rapidly growing internet sales, there should be no taxes added to purchases made over the internet.

            We learn from (The Institute of Policy Innovation, (P.2) that “The Internet has quickly become the defining element of the last decade of the 20th Century. Whether the Internet continues to be the driving force behind the economy, education and even culture in the next century depends to a large extent on what policies, regulations and taxes—if any—Congress and the states impose on the new medium.

            One of the most pressing issues currently facing the Internet is whether and how to tax it. According to one estimate, 64.2 million adult Americans go online each month. Millions of Americans access the Internet daily for information, to make purchases and even gamble. As a result, businesses across the country have been looking for ways to respond to or incorporate the Internet into their business plans. For example, information is so widespread on the Internet today that Encyclopedia Brittanica recently decided to put its volumes of information on the Internet for free, thereby largely eliminating its business model. Should access to that information on the Internet be taxed?”

            There is certainly, almost nothing left that isn’t taxed by the government. They have persistently made certain that anything that can be sold, be taxed. One of the last places to buy products, without being taxed in on the internet. This freedom should be left untouched by taxes.

            We learn from Deloitte & Touch, Forrester Research, that (P.1) “Business-to-consumer sales are only part of the economic activity generated by the Internet. Companies hire consultants to help them with their web sites, pay to get their Internet service and many other expenses. According to the University of Texas’ Center for Research in Electronic Commerce, the Internet economy—i.e., commerce directly and indirectly a result of the Internet—created $301.4 billion in 1998 and was responsible for 1.2 million jobs nationwide. About a third of that amount, $102 billion, was a direct result of Internet commerce.

            The growth in Internet activity and sales has politicians and bureaucrats at the federal, state and local levels considering several new ways to tax e-commerce. However, states’ attempts to tax the Internet have met with resistance, most notably from Congress. Before states plunge into creating new Internet tax schemes, they should consider their options and whether imposing new taxes, enhancing collection efforts under their current taxing authority, or leaving the Internet tax free is the best economic and tax policy to adopt.”

            Leaving the Internet tax free would be the better choice for consumers as well for those who sell on the internet. It is fair to leave money in the hands of the people, instead of the government taking even more money, than they currently take from people.

            The National Conference of State Legislatures, (p.3) says that, “Some states already tax the Internet. For example, several states have imposed a tax on the cost of using an Internet service provider (ISP) such as America Online. But many don’t want to stop there.

            Federal, state and local governments have the constitutional or statutory authority to collect taxes—such as sales and use taxes and taxes on business income—when people and businesses fall within the governmental body’s jurisdiction. That includes traditional retail sales, catalogue sales and sales made over the Internet.

            The rationale behind the current taxing system is that a customer living within the state’s boundaries benefits from the highways, police and other public services funded by the sales tax. Therefore, the customer has an obligation to pay the tax. People living outside the state’s boundaries are unlikely to benefit from that state’s public services and so should not be obligated to pay the tax.

            However, a number of caveats exist. If a customer buys a product subject to a sales tax in a retail store, the vendor collects the tax at the point of sale and passes it on to the state. If retail vendors take an order over the phone, they are supposed to charge that sales tax if the purchaser lives within the same state. If the customer lives in a different state, vendors do not collect a sales tax. However, unbeknown to most people, the customer may still be obligated to pay a “use” tax to his home state. But the fact is that almost no one does that; for that matter, almost no one knows they’re supposed to.”

            It should be possible for consumers to make purchases over the Internet, without having to worry about all the tax issues.

            (P. 5) Austan Goolsby explains that, “The growing demand for access to and use of the Internet has spawned a number of schemes meant to increase tax revenues. In some cases, those schemes have become formal proposals or legislative language.

            Last year, Sen. Ernest Hollings (D-S.C.) introduced his “Sales Tax Safety Net and Teacher Funding Act” (S. 1433), which would impose a 5 percent sales tax on all retail sales over the Internet and through mail order. Money collected from the tax would be sent to the U.S. Treasury and deposited in the “Sales Tax Safety Net Trust Fund.” That money would ultimately be distributed to the states based on a formula and used primarily to increase teachers’ salaries. If salaries were already high in the state, the funds could go for other educational purposes.

            Hollings’ proposal in its current form is visible and taxes all sales at the same rate. It has minimal privacy problems because the buyer’s residence is irrelevant; the customer pays the same tax irrespective of his residence or the vendor’s location. As a result, very little or no information is needed about the buyer, except for the expensive shipping purposes.

            However, the Hollings bill would represent a new and unprecedented federal incursion into state activities. Apparently, the states would be unable to collect any sales or use taxes on merchandise bought online or through mail order. Thus it is unlikely that a state could collect use taxes from one of its citizens who had bought cigarettes over the Internet in order to avoid the state’s taxes. While states don’t collect a lot of money through use taxes, the Hollings bill may undermine any future attempts to do so, costing the states revenue.

            But wouldn’t those losses be more than made up when the states receive their share of the tax? Probably, but that money comes with strings attached. It must be used on education, and so would not be available for general revenues.

            The National Governors’ Association (NGA) has gone far beyond the issue of whether or how to tax Internet access and sales. It envisions restructuring the states’ sales tax systems nationwide. By so doing, it hopes to make collecting taxes on mail-order and Internet sales much easier. According to the NGA, “The proposal’s key tenet is to achieve significant simplification of sales tax systems to match the rapid evolution of the information economy and global trade.”

            Robert Ingrassia says that, “While states may have the right under current law to levy taxes on Internet access, use and sales, most don’t. And that’s the way it should be. There are some reasons for taxing the Internet; there are a lot more reasons not to. States don’t need the money—they are having difficulty giving back all of the extra money they already have. And there is no consistency from them when it comes to tax fairness. So there is little reason to believe that the states will get an Internet tax fair. And considering the harm a tax is likely to do to the growth and development of the Internet, it makes perfect sense for the fifty states—at least for now—to see, clearly, the Internet as a tax-free zone.”

            Just because a tax can be applied to internet sales, doesn’t mean it has to be done.

It’s fair to leave the Internet as it stands. We must retain some of our privileges, without taxes being imposed.

            There is no fair tax, so it should be fair to leave the Internet purchases, tax-free, without other hands going into the pot. There is no need for any type of tax to be charged on Internet sales, so individuals should stand strong and remind the government that our tax-free Internet purchases should be just that.

Reference Page

Deloitte & Touche. 17 Million US Households To Shop Online. Forrester Research. P. 1.


Goolsby, Austan. In A World Without Borders. The Impact of Taxes on Internet

            Commerce. P.5. 2004.

Ingrassia, Robert. Council Okays Tax Breaks for Expansion. Dallas Morning News. P.4.

Matthews, Merrill. Should We Tax The Internet?. Institute For Policy Innovation. P. 2.

The National Conference of State Legislatures. State Budget and Tax Actions

            (P. 3). 1998.

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