Joining The Boston
We have a history of hating taxes in America, and now there are some potential new
taxes to hate. Results of a recent poll conducted by Gallup and At Plan Inc. indicate that
a great majority of those individuals who use the Internet are strongly opposed to any
form of taxation on e-commerce. This survey also discovered that 35 percent of respondents
would be less likely to vote for a political candidate who supports taxation of goods and
services purchased on the Internet. This is news that any self-respecting political
candidate is likely to pay attention to, particularly so close to November elections. I do
take most surveys with a grain of salt, however. I don't imagine that if I, as a pollster,
walked up to the average passerby on a street and said, "Excuse me, but are you in
favor of a new tax?" John or Jane Passerby's response would likely be, "Why,
yes, please! I'm always looking for something new to pay taxes on." Doesn't happen.
But there are some thought-provoking issues here.
Peter Arnold, executive director for a Washington, D.C.-based group called Hands Off The Internet (HOTI), had this to
say about the results of the poll: "This new study is a shot across the bow, and a
clear warning signal to all state and local officials. It is clear; the growing and active
Internet constituency will rise up against attempts by government to place any sort of
discriminatory taxes. The Internet constituency will take a hard look at government
officials exploiting online business and Net consumers all for the interest of new tax
revenue." Wow. I think Sam Adams said something similar right before he and others
dumped caseloads of tea off a British supply ship into Boston harbor.
This topic was brewing in my head one recent morning. I was lying in bed trying to
avoid hitting the "snooze" button again when I heard the beginnings of a report
on National Public Radio. It effectively kept my finger off the "nine more minutes of
covers over my head, please" button. NPR ran the report not only because of the
amount of interest this issue has drawn, but because of the mid-September meeting in New
York City of a group called The Advisory Commission on Electronic Commerce, which was
established by Congress to explore the necessity (or lack thereof) of taxes on goods and
services sold via the Internet. The Commission comprises industry players, trade lobbying
groups and local, state and federal government officials who sit on both sides of the
fence of the taxation issue. Included on the board are James Gilmore, Governor of
Virginia; Michael Leavitt, Governor of Utah; Gary Locke, Governor of Washington; Ron Kirk,
Mayor of Dallas; Robert Pittman, President and CEO of America Online; Richard Parsons,
President of Time-Warner; Michael Armstrong, CEO of AT&T and Joseph Guttentag, Senior
Advisor for the Office of Tax Policy of the U.S. Treasury Department. Very big cheeses,
one might say.
The advisory board was essentially created by a document called The Internet Tax Freedom Act, a tract wordy
enough to put a severe insomniac to sleep for nine days, but which touches on a host of
issues which are likely to heat up in the near future. Perhaps the most notable point is
that the Act currently places a three-year moratorium on "multiple or discriminatory
taxes on electronic commerce," which is given to mean double taxation or taxes that
would not occur through other, non-electronic channels. Moratoriums are often enacted by
government officials to imply that they are clueless about an issue and intend to study it
further, but until such time, no one else is allowed to mess with the topic. Hence the
creation of the Advisory Commission. The Commission's decision will be presented to
Congress on or before April 1, 2000. The moratorium is due to expire on the first of
To cut to the issues, here are the key points. The Internet has no boundaries. If I buy
a turkey and provolone sandwich here in Connecticut, the sandwich got made in Connecticut
and Connecticut taxes apply. The potential for double-taxation becomes strong if I order
the sandwich online from a company in Kansas, which of course, wants a cut of the sale of
my turkey sandwich. The state of Connecticut, where I consumed my sandwich, would be
interested in having a cut of it, as well. Apply borderless Internet buying to interstate
sales, business-to-business value-added considerations or international trade and tariff
rules, and you've got a big mess on your hands.
But states (and even counties within states) have the right to make their own tax laws,
and the Federal government is extremely unwilling (and unable, according to our bewigged
Founding Fathers), to step on the toes of the states. Additionally, a recent Ernst &
Young study put together an interesting tidbit that in 1998, sales over the Internet
accounted for about $170 million worth of lost state and federal taxes. With e-commerce
growing exponentially, that number will only get much, much larger.
So what to do? That's up to the Advisory Commission. Problem is, according to
conventional wisdom, the members of the commission are so divided on their opinions of the
subject their meetings resemble less a civilized debate and more a meeting of the
Continental Congress, circa 1776.
If power is handed to the states to regulate e-commerce taxation in their own unique
ways, the complexity of honoring 50 plus different methods of calculating tax might be
enough to put a great deal of smaller e-commerce companies out of business, thought it
admittedly would open a niche for tax consulting services and software to enable
calculations that would make NASA's head hurt.
Some companies have shown evidence of gearing up for the possibly. Accounting, tax and
consulting firm KPMG recently announced that it has
formed a new e-commerce tax services practice. As soon as the Advisory Commission on
Electronic Commerce hands down its decision in April 2000, KPMG plans to be ready to roll
out these timely consulting services.
My research also came up with the fact that we are far from alone in the Internet
taxation mire. It seems that every developed country on the face of the planet is
currently wrestling with the problem.
To most Americans, the issue is largely academic at this point. Relatively speaking to
the general populace, few people currently buy enough off the Internet for it to really
matter and most are willing to pay for the convenience. A few years down the road,
however, we could see a new American Revolution in progress
albeit without the
tarring and feathering this time.
what would Samuel Adams do?
Tracey S. Roth welcomes your comments at email@example.com.