INTERNET TAXATION: JUST SAY NO!
By Trey Fleisher
Reprinted with permission from Independence Institute
October 16th, Congress passed H.R. 1552, the Internet Tax Non-Discrimination Act which sought to extend the Cox-Wyden
moratorium on Internet taxes for another two years. Our own Governor Owens, who
spoke recently at Citizens for a Sound
Economy, a free-market think tank in Washington D.C., publicly reaffirmed his call to permanently ban Internet taxes.
Interestingly, yet unfortunately and not surprisingly, Owens is one of only a handful of governors to oppose Internet
Also unfortunately Senator Byron Dorgan of North Dakota objected to a vote on H.R. 1552 which effectively
killed the moratorium. Of course
Dorgan did so because “all that revenue” could be used to finance schools. The last
refuge of the regulator - when in doubt, insist it’s “for the children.”
The Supreme Court’s 1992 decision, Quill
Corp. v. North Dakota, reaffirmed that states could not compel mail-order catalogue companies to collect sales and use
taxes if the firm did not have a physical
presence within the geographical area of the buyer. This decision also
indirectly included Internet purchases. Most states and localities were
none too happy with this interpretation and,
like my cat Felix when he’s hunting crickets in the garage, were poised to pounce on the chance to establish the “bright
line” that says Internet purchases should be taxed.
Yet there was this little revolution a couple of hundred years
ago related to some issue surrounding “taxation without representation.” A
few of us may remember this. Who is “representing” a
company that exists only on the Internet? Astonishingly, the Court in Quill agrees.
State and local bureaucrats say
these tax revenues are for critical needs, especially those of children. A National Governors Association study projects that
states could lose up to $20 billion in tax revenues
from cyber purchases through 2003. But, state revenues are overflowing
already, with many states’ citizens asking for tax cuts to ameliorate the foreboding prediction of an economic slowdown or,
even worse, a
States have seen revenues propelled upward more than 5% per year on average over the last
decade. Is there really a need for even more revenue? Similar to an overweight person at the grocery store, states
localities see the Internet as another gluttonous meal to scarf down as fast as possible. Who would have thunk? Ain’t it
just like a government entity to detect a new taxing source (its life blood) and try
and bloat up further to satisfy its
The cries for more revenue are pleadings from a group that always screams that the sky is falling.
H. L. Mencken noted, “The whole aim of practical politics is to keep the population alarmed (and hence
clamorous to be led
to safety) by an endless series of hobgoblins, most of them imaginary.”
The pro-Internet taxation gurus also allege that
they care deeply about fairness. Is this tax regime fair? No. As the Reverend Robert G. Lee of
Memphis stated, “Fair is what
you pay when you ride the bus.” Or, “fair is where you go when you want to see the pigs race.”
It is unfair that the brick
and mortar companies are taxed at local rates and cyber firms (without a local presence) get off scot-free. Yes, it is unfair.
But there is a most important egg to crack. The lower tax
rate on cyber goods will force states and localities to lower
their revenues in turn. People and firms can vote with their feet if they don’t like the ombination of state/local taxes and
services. Just ask businesses and individuals in New York City, for instance, who have been overtaxed and over-regulated for
the last 30 years. However, it may be difficult to find and ask them because they have disappeared from New York. Between
1970 and 1995, New York had the highest per capita state spending and lowest employment gains of any state in the extended
Northeast (D.C. to Maine). Coincidence or conspiracy?
A no-taxation system of Internet purchases sets up a natural
constituency to fight for lower tax rates - those ’unfairly’ taxed brick-and-mortar businesses and their customers. These
firms/customers will be the engine to lower tax rates. To stay competitive they will lobby the taxing authorities to push
sales taxes down. This is the real reason why we should continue to push for a permanent ban on Internet taxes.
H. L. Mencken was prescient when he said, “The only good bureaucrat is one with a pistol at his head. Put it in his hand and
it’s good-bye to the Bill of Rights.” Taxation is just one of the pistols that the government has in its armament. By taking
away at least one of the bullets from its cache, there is a good chance that the bureaucrat may lose even more power. It is
the right thing to do.
Internet taxation: Just Say No.
Research Associate Trey Fleisher wrote this article
for the Independence Institute, a free market think tank in Golden;
This article, from the Independence
Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles
are published for educational purposes only,
and the authors speak for themselves. Nothing written here is to be construed
as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative
action. Please send comments to: Editorial Coordinator, Independence Institute, 14142 Denver West Parkway, Suite 185, Golden,
CO 80401. Phone
(303) 279-6536 or FAX to (303) 279-4176; e-mail is email@example.com