Taxation without (physical) representation?

Two-hundred-plus years after the thorn of taxes led to the founding of this country, our leaders are once again

debating the ills of taxation without (physical) representation.

At issue are sales taxes for online purchases, and in particular those made at Web sites of e-tailers that have no brick-and-mortar outlets. A Federal moratorium exists on taxes for all online purchases and will last until Oct. 2001. Until then, states are unable to collect fees from online sales, although they can collect taxes from e-tailers' physical channels: catalogs or stores.

Brick-and-mortar retailers, naturally, say the moratorium gives Web-only e-tailers an unfair advantage, while opponents of e-commerce taxes say levies would stifle growth of the Internet, which is driving the U.S. economy to new heights.

This week, a 19-member commission comprised of politicians and business people held a meeting of the Advisory Commission on Electronic Commerce in Dallas to hammer out a recommendation to congress for taxing Internet purchases after the existing moratorium expires. Unfortunately, the group was unable to reach the two-thirds consensus it needed by law to provide "findings and recommendations" to Congress.

Part of the problem is making e-tailers responsible for collection of state sales taxes when there are about 7,500 different tax codes. As a solution, a group of 28 states is currently exploring the idea of an Internet tax clearinghouse, which would levy the appropriate tax and pay the correct state. But therein lies another problem: In the brick and mortar world, the tax goes to the state where the business operates. To which state should e-tailors with no physical presence pay sales taxes? Some say it makes sense for the entire tax code to be simplified, with taxes being paid to the state in which the buyer resides.

So the debate roars on. Nearly 60% of online buyers say they would make fewer Internet purchases if they had to pay a sales tax on them, according to BizRate.com. Yet 72% of Americans say it's unfair that local businesses have to collect sales taxes while Net retailers do not, according to a study conducted for the U.S. Conference of Mayors.

By Laura B. Smith, a contributing editor based in Swampscott, MA.


This was first published in May 2000

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