E-Commerce Taxation Issues

Abstract

This article is designed to give the reader a balanced perspective on some of the issues surrounding the current discussions related to state and local taxation of Internet access fees and sales transactions. It attempts to express the issues being discussed and presents several viewpoints. The proponents of Internet taxation are searching for technological and administrative system to meet their goal. After much deliberation, the Advisory Commission on Electronic Commerce released its final recommendations to Congress in April 2000. Major emphasis is being placed on simplification, neutrality, avoiding double taxation and accepting the existing tax rules with no new taxes. The United States economy has benefited tremendously by e-commerce. This escalation has created numerous highly skilled jobs, providing the consumer with goods and services at competitive prices. The Internet Tax Fairness Coalition and many other groups feel that implementing taxes on the Internet transaction can have an adverse affect on the businesses. According to the Supreme Court of United States, a vendor has a sales tax obligation only when the buyer and seller are in the same state or has a physical presence (nexus) in the buyer’s state. These coalitions feel that entry barriers for new and old companies, who have yet to exploit the e-commerce, will slow the growth in this sector. With over 30,000 taxing jurisdictions, tax collection and payment can be a complex process. Many street retailers collect at a single rate, and prepare and file a single tax return at one place. Taxation of online transactions would require the vendor to identify and send forms to all taxing jurisdictions. Under the present circumstances, the ever-changing maze of state and local tax policies makes application of a single Internet transaction tax policy virtually impossible. The complicated, complex and ever changing maze of state and local tax policies and laws make application of a sensible, fair and easily understood Internet transaction tax policy virtually impossible under the present circumstances. James Plummer, a policy analyst at Consumer Alert wrote, “Nefarious new taxes and regulations will kill many new start-up e-businesses before they even start up; denying consumers their chance to find the specialized products and services for their needs” (Plummer, 2000). The anti-tax community and coalitions have a strong adversary in the National Governor’s Association. The State is worried that the brick and mortar stores are jeopardized by the popularization of Internet commerce, which is taxfree. The Governors suggest that government tax policy offers a competitive advantage to Internet stores. Major brick and mortar retailers such as Sears and Wal-Mart are concerned that if unresolved, this issue may gain much public resistance, thus making the taxing of e-commerce politically impossible.