Argument: Not taxing Internet Commerce would deprive state and local governments of Revenue that is essential to community services and projects. Yes, The Internet is the future. It is growing at a phenomenal rate and new businesses are popping up every minute. According to the Treasury Dept. , in 1998, approximately $7. 8 billion was spent over the Internet.
However, they expect that number to exceed $70 billion this year, $300 billion by 2002, and reach $1. 45 trillion by the year 2003. This explosion of growth is good for the economy as a whole, but will have a negative impact on some local economies. E-commerce says we shouldn t kill the Internet with taxes. But, this just skillfully sidesteps the basic question: Why shouldn t the Internet be taxed like everything else Well, the answer is that it should. Shannon argued that the Internet should compete with traditional stores on an equal footing.
It s fair and it levels the playing field for all businesses. People buy online for lower prices, more choices or greater convenience. You wouldn t buy products online to simply avoid taxes No, of course you wouldn t The other team and the media are leading you to believe that the Internet is a wonderful little place where you can buy and sell things, and no one else is effected by it. Well, that just isn t true. Sales transactions on the Internet will effect every person in this room whether you use the Internet or not Sales tax has long been one of the mainstays of state and local government s revenue. It accounts for approximately 18% of a state s revenue.
Local governments depend heavily on sales tax to provide a fairly steady revenue throughout the year. According to Forrester Research Consulting Firm, state and local governments already may be losing on the order of $5 billion in sales tax revenues annually from their inability to tax most mail-order sales. With Internet sale growing rapidly, these governments could be losing an additional $10 billion annually by 2003, if Internet purchases remain tax-exempt. Revenue losses would continue to mount thereafter. That is, roughly $10 billion worth of tax revenue that would have flowed to state governments to fund community services, if goods had been purchased in stores rather than through the Internet... According to Glenn Simpson of the Wall Street Journal, Feb 2000 article, States and local governments could experience significant loss of sales tax revenues and telecommunications tax revenues if the Internet Tax Freedom Act were to be enacted.
Some revenue losses would be immediate; others would depend on how broadly various provisions in the legislation are interpreted by the courts. These revenues fund essential community needs such as school, police and transportation services which could eventually be cut back. California, at the heart of the new Internet technology, is likely to feel the most severe effects of this change. This means you! ! Because of Prop 13's limits on property tax revenue, state and local governments in California are extremely dependent on sales taxes to fund their budgets, so any increase in untaxed interstate sales at the expense of local retail will be magnified. If the problem of Internet tax is not addressed soon, America could have 200, 000 fewer teachers and police officers educating our children and keeping our communities safe. Many states fund local government, roads and highways, law enforcement, and education by sales tax revenues.
If people continue to buy goods and services by Internet and not at the local grocery store, small businesses in local America will be paying the taxes that Internet businesses won t be paying. California public schools are losing millions of dollars in state funding as the result of uncollected taxes on Internet, mail-order and other "remote" sales by out-of-state merchants. The rapid growth of e-commerce is making the problem worse and will double the revenue loss to local schools in the next five years unless treasury acts. If the tax exemption for Internet and sales is not eliminated, low-income consumers without the resources to shop on-line or by mail will pay a disproportionate share or state and local sales taxes.
If states and localities cannot tax goods and services purchased by more affluent households and businesses on the Internet, lower-income households consigned to shopping in local stores are likely to bear more than their fair share of sales taxes. It s possible that States may try to preserve a target level of sales tax revenues by increasing sales tax. However, if sales tax is increased, low-income households would face higher sales tax burdens in addition to paying a larger share of sales taxes. In conclusion, state and local govt s will be deprived of the necessary funds that are needed to support essential community services and projects, if the sales tax on the Internet is not collected. Local communities will be left in the dust with not enough funding for education, law enforcement and other community services. Were not asking for new taxes, we just want the taxes that are already owed to be collected.
A level playing field is what s best for the new economy. Operating in a fair climate allows consumers to enjoy the freedom of shopping choices without tax preferences, and communities will continue to see the many benefits that revenues from sales tax provide.