Internet

Big Government from the Back Bench

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Techdirt reports that last week's election results could spell doom for the moratorium on new Internet taxes.  Not because of the new Democratic majority—though it's likely they'll go along. 

Rather, it's because of a Republican.  Former Tennessee governor Lamar Alexander has had a decade-long grudge against e-commerce going back to his days as governor of Tennessee.  He resented the sales tax receipts his state lost when Tennesseans conducted business via the Series of Tubes.  He's fought to lift the moratorium ever since.

Alexander is likely to be elected Minority Whip for the next session, giving him considerable pull over what positions and priorities the GOP caucus will adopt.  That's leading to speculation that the moratorium may be dead when it comes up for renewal next year.

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  1. Well I hate to say it, but this is one area George Allen will be sorely missed. Maybe Bush will dust off the old veto pen if something like this gets through.

  2. Has anybody really ever explained why purchasing something over the internet should be exempt from the taxes that would be paid if that same item was purchased from a store?

  3. I think Ludwig Von Mises gets into that on page 1263 of Human Action.

  4. Dan T. The position held by many, myself included, is that when I purchase something over the internet or by phone (catalog sales) the transaction occured at the point of purchase, i.e. the sellers location. If I drive to Ohio, buy a sweater’ and drive back to Michigan with it, I should not have to pay a Michigan sales tax on it because I didn’t buy it in MIchigan. If state X wants to charge a sales tax on all purchases in state X, including mail order and internet, so be it.

  5. Dan T. The position held by many, myself included, is that when I purchase something over the internet or by phone (catalog sales) the transaction occured at the point of purchase, i.e. the sellers location. If I drive to Ohio, buy a sweater’ and drive back to Michigan with it, I should not have to pay a Michigan sales tax on it because I didn’t buy it in MIchigan. If state X wants to charge a sales tax on all purchases in state X, including mail order and internet, so be it.

    Gotcha. That makes sense to an extent, but the internet is certainly uncharted territory as far as how taxation might work.

  6. not that i am suggesting e-commerce be taxed but… the disparity between sales tax in person and on the internet can be considered doubly regressive since the sales tax itself is regressive and then look at the data of who buys goods/services over the internet… not low-income families.

  7. K. Toishi – I reiterate, If state X wants to charge a sales tax on all purchases in state X, including mail order and internet, so be it.

    It has been ny experience that low income people do buy via mail order. I’ll quibble that a sales tax is regressive. It is actually flat. If you exempt yachts nad fur coats then it becomes regressive.

  8. Make that and vice nad. I’m a crappy typist.

  9. Has anybody really ever explained why purchasing something over the internet should be exempt from the taxes that would be paid if that same item was purchased from a store?

    Internet Taxation: sam’s 2 cents

    I would also guess that some types of commerce require government services that others do not. For example, if you take a bus to a store, then you are availing yourself of government sponsored transporation services (the bus and its roads), zoning services (they had to know where to let the store exist and where to forbid it), education services (the cashier at the store has to have some basic math, often from public schools), building regs, small claims court, etc., etc.

    Internet purchases require less government inputs to happen (altho I think the FedEx truck still drives gov’t roads), so it makes less sense to tax the transactions, or at least not to tax them as much.

    All things considered, I think the Internet should stayed untaxed not for the above rationale, but rather because not taxing the Internet effectively discriminates against older people, and therefore makes up for some of the other taxes and (insurance) regs (or lack thereof) that discriminate against young people. I think taxing the Internet is one of those things that might actually change a few young non-voters into young voters with a libertarian streak. I think the major parties know this and want to avoid it. Once young people buy into US poltics, Social Security is toast.

    Side note on Canada:

    The Conservatives recently closed a tax loophole for rich people (call Income Trust). The Conservatives also claim to want to reduce the national portion of the sales tax. So the Conservatives are fighting a regressive potion of the tax code and enforcing a progressive portion.

    Now the just-re-elected mayor of Toronto, from the beyond-liberal party is fighting to keep the (regressive) sales tax up.

    So the Conservatives seem to want a more progressive tax structure, and the hippies want a regressive one! We are thru the looking glass here people. Everyone is on the “wrong” side.

  10. Internet purchases require less government inputs to happen (altho I think the FedEx truck still drives gov’t roads), so it makes less sense to tax the transactions, or at least not to tax them as much.

    How much did the government spend developing the internet in the first place?

  11. How much did the government spend developing the internet in the first place?

    The state governments that charge sales tax? Zip, zero, nada.

    The military paid a lot presumably, but, as you may know, i don’t think poor people should pay for the military, which means that sales tax would be an exceedingly bad vehicle to recoup the investment, if you wanted to look at it that way. Another way to look at it is that the government uses Internet technologies for military purposes now, and that they therefore have no need to recoup the investment outside the military sector.

  12. developing the internet

    Unless you are asking who laid the wires, built the switching grid and bought the computers. in that case, the answer is telephone companies, cable companies, computer owners and ratepayers.

    In other words, it ain’t road construction and maintenance we are talking here — it is something less governmentalicious.

    the phone and cable bills are somewhat taxed, too, so there is one bite at the apple.

  13. Doesn’t this have to do with more then sales tax, like bandwidth tax, bit tax, and email tax?

    By the way, ending the moratorium would be a terrible thing because once those taxes are in place they will never go away. Despite the fact that the federal government, as well as all local governments have survived just fine without them. And, of course once they are there to stay, they only get worse.

  14. From a simple allocation of resources perspective, it makes sense to tax all sales equally and let the market decide which will have more use made of it.

  15. Interstate commerce is not taxed by any state. If both the seller and the buyer are in the same state, then sales tax is applicable. The difficulty with the internet is discerning whether the seller can properly discern the location of the buyer.

  16. I think that the original reason was to allow the Internet to get started and to reduce the problem of complication.

    Now, I’d support a 5% tax on all Internet sales with the revenue going to the state in which the corporation resides, or if the corporation is out of the country, to the US government, earmarked for Internet support.

    I realize that this is a TAX, but it seems fair-ish, relatively easy to administer, and does pay the state for some of the cost of the corporation.

  17. Saying that the government built the internet is akin to saying that the bit of dust around a snowflake forms built that snowflake.

  18. “Around which a snowflake forms,” that should be.

  19. I’ll quibble that a sales tax is regressive. It is actually flat.

    No, because expenses aren’t proportional to income. Even the “fair tax” proponents recognize this and incorporate a rebate.

    Unless you are asking who laid the wires, built the switching grid and bought the computers. in that case, the answer is telephone companies, cable companies, computer owners and ratepayers.

    Unless you’re asking who subsidized all that, in which case the answer goes back to government. However, it was mostly federal, and I don’t see how taking more money from the public is any answer.

  20. The early stirrings of the internet were mostly at university campuses, with some of those being public institutions, and others private. There was probably federal aid dispensed to the private schools, too.

    The regressivity of many states’ sales taxes is diminished by exemptions. Where I live, no sales tax is paid on prescription drugs, real estate, apartment rental and groceries. Sales tax is paid on hotel bills, and on prepared food, whether in a restaurant or for takeout. The idea is to avoid taxing necessities. Some states exempt clothes purchased for work (up to some threhhold amount) and sales tax holidays during the back-to-school period have been tried as a way to reduce the burden on low income families with kids in school. As with any tax, if you narrow the base, you have to push up the rates to steal as much booty.

    Our state’s tax is actually a “sales and use” tax. To be strict about it, if I buy something out-of-state and do not pay that state’s tax, I am supposed to self-report the amount I bought that is subject to the tax, as part of my state income tax return. In the case of cars, the state learns about a purchase from registration records, so one has to pony up. Still, if the next state over has a higher sales tax, I don’t have to pay their tax, since I’m paying to my state instead.

    Lamar!‘s vision of ~45 jurisdictions collecting sales tax from internet sales is simplistic. If someone in California buys something shipped from Idaho, which state should collect? If the store is in Oregon, which doesn’t have a sales tax, how can Cali force OR to set up a collection scheme? Start adding in the states with add-on percentages for counties, cities, and special-taxing districts, and there may are thousands of separate applicable tax rates. Unless a uniform national sales tax replaced the levies of the several states, there wouldn’t be a way to do this that wouldn’t be a complete nightmare for small business.

    Kevin

  21. Unless you’re asking who subsidized all that, in which case the answer goes back to government.

    You mean my telephone service would cost even more if it was not subsidized?!?!?

    I have a hard time believing that.

    I have wanted to get rid of my home telephone for so long. I can’t believe that the service really costs anywhere near what my provider(s) have been charging me for it.

  22. Lamar!’s vision of ~45 jurisdictions collecting sales tax from internet sales is simplistic. If someone in California buys something shipped from Idaho, which state should collect? If the store is in Oregon, which doesn’t have a sales tax, how can Cali force OR to set up a collection scheme?

    You go after the sellers, not the customers. This is especially the way to do it because business is organized enough and lobbies in a directed way such that the taxes will not go out of control the way some posters are (understandably) predicting.

    I hope they don’t start taxing free stuff. I released my record today and it is free (for the consumer anyway):

    http://www.farceswannamo.com

  23. There are two separate (but related) issues being conflated here.

    1) The Internet Tax moratorium is a ban on taxes on Internet access. When I get my bill from Charter, I pay sales tax on my cable service, but not on my broadband access. The moratorium prevents the state and local government from levying sales tax on the internet portion of my bill.

    2) When I make an online purchase from Amazon, I pay no sales tax. But this happens because Amazon has no nexus in my home state, if they did, they would have to collect sales tax. The circumstance exists because of case law that determines when a firm has nexus for sales tax purposes and has nothing to do with the Internet Tax Moratorium.

    Lamar Alexander (and many other people) may well support both terminating the internet tax moratorium as well as changing nexus rules to require collection of sales tax on a greater proportion of e-commerce transactions, but they are two separate issues. Lifting the Internet Tax Moratorium, in and of itself, will have no effect on sales taxes on e-commerce.

  24. Who will get behind my First Amendment Exemption from all sales taxes? No taxing the sale or rental of any books, newspapers, magazines, subscriptions to any media stream however received, audio or video recordings, etc. In short, if it has Amendment 1 protection, not the feds, nor the locals nor the state can tax it.

    Were the Stamp Act riots in vain?

    Kevin

  25. Were the Stamp Act riots in vain?

    I’m afraid so. Hell, most of the Revolution is now pretty much “in vain” right down to the first names of the tyrants.

    The U.S. has come full circle, beseems. Just don’t expect another revolution this time around. Americans are too fat, dumb, and swimming in public choice swag to do anything.

  26. “The regressivity of many states’ sales taxes is diminished by exemptions.”

    Less regressive still isn’t flat.

    “You mean my telephone service would cost even more if it was not subsidized?!?!?

    I have a hard time believing that.”

    If all state favors, including barriers to competition, were eliminated, your phone service would likely cost less.

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