Too Touchy a Topic

by Robert J. Wagman

Don’t expect any lawmakers to take up the political hot potato of taxing Internet sales ­ at least until it cools off a little. Last Winter, Congress’ 19-member Advisory Commission on Electronic Commerce dumped the issue back into Congress’ lap when, after two years trying, its members could not reach a consensus.

The hearings showed how devilishly complex the issue is. Opinions do not break out over traditional party lines: Anti-tax conservatives have come out against Internet taxes, but so have liberals who support wide Internet freedoms. At the same time, governors ­ both Republican and Democratic ­ get furious at the millions in tax revenues their states stand to lose.

The commission could not even agree on the basics. Are Internet transactions “interstate commerce” and thus subject to federal jurisdiction? Can a state tax a purchase simply because the seller’s server happens to be located there? Don’t ask us, the Commission sagely pronounced.

There are now three schools of thought, but no clear consensus. Some say there should be a blanket exemption for e-commerce from any state sales taxes or federal levies. Others hold that all Internet sales should be taxed as any brick-and-mortar sale is taxed. Lukewarm middle-grounders hold that taxes should apply only if the online merchant has a physical presence in the state to which the good are shipped, as is the case in catalog sales.

The three camps will keep wrestling, and Congress will almost certainly extend its two-year-old moratorium on Internet taxes for another year, hoping that the topic will cool down.

Small Business Computing Staff
Small Business Computing Staff
Small Business Computing addresses the technology needs of small businesses, which are defined as businesses with fewer than 500 employees and/or less than $7 million in annual sales.

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