Study Guide

Taxation

Internet taxation is turning out to be a hot topic today. Presidential candidates are talking about it. George W. Bush has pledged to support a duty-free Internet, while Al Gore has called a tax-free internet "a catastrophe for local governments." Even President Clinton has changed his mind on the subject by acknowledging that a web sales tax is needed.

Supporters of internet taxation worry that tax-free internet purchases would erode state and local revenues and shift the burden onto lower income households. Opponents of internet taxation point out that even with the explosion of e-commerce, state and local sales tax revenues have been rising. More moderates would point out that current state use taxes, which are allowed under the Internet Tax Freedom Act, already allow states to collect revenue from e-commerce purchases. North Carolina added a use tax line to the 1999 NC Income Tax form.

Several basic issues need to be addressed:

• Is it really fair not to tax internet purchases, in effect giving e-commerce a tax subsidy?
• If e-commerce really is the future, why should it need to be given a sales tax exemption in order for e-commerce to succeed?
• How would an equitable sales tax be implemented, considering there are over 6,000 sales tax jurisdictions nationwide?
• Who would get the sales tax revenue? The state the server is located in or the state in which the purchaser is located?