Tax the Net! Continued
page 6: Online Tax Collection
Leavitt and others who would like to end the tax advantages of Web
merchants concede that collecting taxes on the Net is problematic. Their
goal is to create a simplified system of tax collection. This would ease
the "undue burden" on Web merchants and presumably withdraw the
protection of court decisions. Indeed, Leavitt says that once a
simplified system is put in place, local governments could either
challenge the Web's tax exemption in court or seek national legislation
that would allow the states to collect sales tax on e-commerce. One
problem in need of a solution is the fact that there are thousands of
tax jurisdictions. Even within a given state, tax rates may vary. So
Leavitt would like to see uniform tax rates on electronic sales within
each state. Additionally, tax rates on related products would need to be
simplified. For example, some states tax roasted peanuts, while others
only tax raw peanuts. James Goldberg, Washington, D.C., counsel for the
Lombard, Ill.-based North American Retail Dealers Association (NARDA,
which represents retailers of consumer electronics, computers and home
appliances) believes the system can be sufficiently simplified for
online tax collection: "It's not as complicated as sellers make it out
to be." Interestingly, IBM's Caine agrees that a technology-based system
for online tax collection is feasible. Caine emphasizes that he's not
endorsing the assessment of online taxes. But, he adds: "Yes, I do think
it's technologically possible." Some online sales, however, may remain
very difficult to tax because online businesses could set up operations
abroad in tax-free havens. Sellers of computers or Furby dolls would
still have to warehouse and ship the products, making it easier to
assess levies. But what about vendors of software and information? Their
products are downloaded directly to the customer's computer. "It's
conceivably a problem that a company selling software or data services
could establish itself outside the U.S. and escape [tax obligations],"
says NARDA's Goldberg. Software distribution is one of the industries
already profoundly affected by the Web. Retail software giant
Egghead.com Inc. of Spokane, Wash., closed all its outlets in February
1998 to focus on Web sales. And software and other downloadable data,
such as music and video, may just be untaxable on the Web. For that
reason, Gov. Leavitt suggests it may be necessary to exempt products
such as CDs from sales tax--even when sold through physical retail
outlets. It will be interesting to see how this sort of table-turning,
if it ever comes to pass, would affect e-commerce firms' stocks. But if
they ever hope to collect online taxes, the states will probably have to
go to court to win that right. Congress is simply not likely to seal off
a tax haven sought by ever-larger numbers of consumers. Besides, tax
dodging (or "tax avoidance," as its apologists prefer to call it) has
never been more respectable. Forever unloved, the tax man has become
ideologically unfashionable in recent years, as conservative think tanks
and business publications have pounded out a steady drumbeat of
anti-government, anti-tax harangues. So even if the Net's tax advantage
is unfair, it's likely to be permanent. NARDA counsel Goldberg is not
too optimistic about a legislative push to ensure equity for storefront
businesses. "Intellectually, members of Congress understand it's fair.
Politically, it has the appearance of imposing a broad new tax on the
Internet," he sighs. Chalk up another big win for tech's Masters of theUniverse.
Source:
upsidetoday.com |
