Internet Taxation – A Debate

1. Internet Taxation – A Debate Source: The incredible internet

2. Con Complicated tax system Different items subject to sales/use tax depend on each jurisdiction Numerous and varying definitions High compliance cost Negative impact on the growth of e-commerce Extra burden on customer: paying tax in addition to existing handing and shipping costs Fairness: Businesses receive no benefits or services from a jurisdiction when they are located elsewhere. Ability of consumers to buy goods and services from merchants located outside the reach of their own government’s taxing authorities The buying and selling of intangible “goods” from external (or non-domestic) sources Potential diminishing fiscal autonomy of States and Local Governments due to necessary simplification and standardization of tax system

3. Rationale for “No” Internet Taxation • Our all-in marginal tax rate is 40% Source: "Does It Pay, at the Margin, to Work and Save?" by Laurence J. Kotlikoff and David Rapson

4. How much can you Tax? Reduce Taxes • http://www.youtube.com/watch?v=6FBWwAC3lPk&feature=related Tax Freedom Day – keepproducing.org • http://www.youtube.com/watch?v=z-HGQj_pBag&feature=related Commercial – Extend moratorium • http://www.cfif.org/htdocs/legislative_issues/federal_issues/hot_issues_in_congress/internet_taxation/legis/federal/internet/tax/commercial.html Reuters: Debating the Internet Access Tax • http://www.youtube.com/watch?v=eJjz0AFxnWo Fox News: No Internet Taxes • http://www.youtube.com/watch?v=4qLvfmMHoA8&feature=related Tax Freedom Song • http://www.youtube.com/watch?v=bjy8KWsPtDE Real debate on the net • http://www.youtube.com/watch?v=96JXTWttOwU Your Money: Online Sales tax • http://www.youtube.com/watch?v=G47VR2JKL3Y&feature=related Congress debating internet taxes • http://www.netcaucus.org/events/2007/taxation/video.shtml

5. Internet Tax Freedom Act • Internet Tax Freedom Act was introduced on October 21, 1998 • Has been extended by another seven years, and will expire in 2014 if not renewed. • Prevent states from either applying sales taxes to categories of electronic services or goods with no physical counterpart or applying discriminatory sales taxes on Internet commerce that do not, for example, apply to catalog sales. • Internet – A “global free trade zone” • “In my view, the Internet has the most profound liberating potential since Gutenberg’s invention of the printing press, which allowed the mass distribution of ideas, thoughts and information. This legislation is a step forward to keeping the Internet free of unfair, discriminatory taxation policies that would impede its future growth as a source of commerce, education and information.” • U.S. Senator George Allen (R-Virginia) • On the introduction of S. 777, • Internet Tax Nondiscrimination Act • April 26, 2001

6. States reliance on sales tax revenue Source: Legislative analyst’s office (CA): http://www.lao.ca.gov/2000/013100_inet_tax/013100_internet_tax.html

7. World Internet Statistics • Electronic commerce has become a critical engine for economic growth • More than 27 million small-business owners will potentially be affected by Internet sales tax Source: http://www.internetworldstats.com/stats.htm

8. Internet Usage Statistics Source: www.emarketer.com

9. Total US Retail Sales (Online) U.S. retail ecommerce sales for the fourth quarter of 2008, adjusted for seasonal variation, but not for price changes, was $31.9 billion Source: Census Bureau, Department of Commerce

10. E-Commerce Sales Source: www.emarketer.com

11. Forecasted E-Business Growth

12. Rationale for “No” Internet Taxation • Enhances future growth and strategically position the nation to compete in the global economy • Americans can have affordable access to the Internet and promotes further broadband deployment in rural and outlying areas that may lack high-speed Internet access • Gateway to entrepreneurship, regardless of race, income or neighborhood.- Higher taxes on technology will stifle the ability of small businesses to operate, grow, and create new jobs.

13. Rationale for “No” Internet Taxation • Impede consumer demand for access, cripples innovation, creativity and competitiveness • Multiple points of consumption – makes it more difficult for independently administered tax agencies to identify, monitor, and resolve international “tax” transactions. • Ability of consumers to buy goods and services from merchants located outside the reach of their own government’s taxing authorities • The buying and selling of intangible “goods” from external (or non-domestic) sources • Internet sales tax could encourage exporting jobs to different states

14. Rationale for “No” Internet Taxation • Enforce vital tax policy initiatives and decisions independent of trade and investment considerations. • Globalization growth will be curtailed • Applying a provincial average sales tax of 14% to all Internet sales in Canada would reduce the number of online buyers by as much as 44%.

15. Proposed Solutions • The National Sales Tax -- Alternative One • Under a national sales tax option the federal government would determine the rules and tax rates for all domestic electronic commerce. • Freedom of States -- Alternative Two • The "Freedom of States" policy would give taxing authority, and the right to regulate ecommerce, to the individual states. • Internet Tax Equity Policy -- Alternative Three • The third option proposed would involve allowing the states to collect taxes on all goods,regardless of the method of transaction, under a federally-regulated tax policy.