Contrary to what their supporters say, Internet taxes neither empty state coffers nor destroy local businesses, according to a study released by the Cato Institute, a libertarian-oriented think tank.
Cato trade policy analyst Aaron Lukas, in Tax Bytes: A Primer on the Taxation of Electronic Commerce, says that this past holiday season's boom in online shopping "has prompted many state and local officials to call for broad new taxing authority."
Lukas writes that the U.S., being the nation which birthed the Internet, has "a special role to play" in keeping "revenue-hungry state and national governments" from "kill(ing) the goose that may lay the golden eggs" unjustly.
With online shopping revenues amounting to about $13 billion in the U.S. in 1998 and expected to multiply ten times by 2003 (to about $108 billion), Lukas says that kind of growth has "many governments worried that they are not adequately prepared to tax this flood of new commerce."
The idea that rising online sales mean falling local goods and services sales and that local governments lose tax opportunities has many looking for ways to tax the Net's sales to make up for the alleged shortfalls.
A three-year federal moratorium on Internet taxes expires next year. The Congressionally-mandated Advisory Commission on Electronic Commerce is examining Internet tax issues and is expected to make a recommendation shortly. Lukas's advice on Net taxes: don't even think about it.
"The federal government should continue to prohibit states from imposing tax collection duties on out-of-state businesses by establishing a uniform national jurisdictional standard for taxing electronic commerce based on the substantial physical presence test," he writes in his analysis. He says most states now run large budget surpluses, meaning they don't really need the extra tax revenues since they "lost" only about a tenth of one percent of total sales tax revenues - about $170 million in 1998, he writes.
And he scoffs at the idea that e-commerce threatens traditional brick-and-mortar retail, saying only 10 percent of American households have made online purchases - with only four percent of that group doing it more than ten times a year.
