Taxation of E-Commerce

The Internet has created a world without borders. Consumers can purchase goods and services from around the world by going online and comparison shop for whatever they wish, be it a computer, a car, a book, and make their purchases, all tax-free, unless the vendor has a store in their state. The current tax system recognizes over 30,000 tax jurisdictions, within the 30,000 tax jurisdictions, there are more than 7,000 separate state and local tax rates that cover all goods and services.

The sales tax burden from multiple tax jurisdictions could be very costly. Taxation of online transactions "would require that the vendor identify all relevant taxing jurisdictions, calculate how much to charge, file forms, and remit payments to hundreds or even thousands of different taxing authorities" (Lilly, 1999). Trying to establish a tax system that takes into account the different jurisdictions, tax rates, the different product definitions, and which products are subject to taxation is a great challenge that could significantly impair the ability of large and small dot-com companies to make money or even to operate.

The ethical issues generated by Internet sales has, not surprisingly, caught the attention of business executives as well as local, state, and federal political leaders. The most pressing question, as one might assume is, "Should the Internet be taxed?" Existing tax laws were not developed to face the significant changes that continue to take place with the emergence of the Internet or "New" economy. The Internet allows anyone with Internet access to make purchases from anywhere in the world.

Forrester Research recently reported that online sales would grow to more than $184 billion by 2004 (Roserncrance, 2000). Potential tax revenues from Internet commerce are huge, and it should come as no surprise that state governments want to tap into this new source of revenue to pay for schools, roads, and critical infrastructure. Taxation of anything is a constant political game, and taxation of Internet commerce has proved no exception. Likewise, it should come as no surprise that an important group of politicians and cyber and technology business leaders oppose taxation of the Internet.

The effected parties of the taxation of e-commerce is the internet commerce that has touched all aspects of business technology infrastructure, business-to-business commerce, business-to-consumer commerce, business portals, new business models, the growth, and decline of tech stocks, new marketing and advertising strategies, and interesting strategic alliances and partnerships.

The consequence, that if electronic commerce should be completely tax-free then it is often the interpretation given to parts of the White House paper, "A Framework for Global Electronic Commerce." But, it is a misinterpretation, failing to distinguish the United States' views on tariffs from those on taxes. The United States has made it clear that it does not oppose existing taxes being applied to electronic commerce in a neutral manner. In fact, President Clinton, at a technology conference in San Francisco, indicated that the United States was working with the Organization For Economic Cooperation and Development (OECD) on the taxation issues to achieve this neutrality and to ensure that taxation will not become a barrier to the development of electronic commerce. Although tax-free e-commerce might assist the sector to grow more rapidly, it also would create an uneven playing field, which would discriminate against conventional commerce. Not only would such an approach be unfair, it would create serious economic distortions in the market place.

It is a given that few Americans like taxes, but it is our obligation. To dredge up an old clichй, the fountainhead of American political culture rests on the phrase "no taxation without representation." We Americans are tax allergic, but taxes do serve a useful purpose. They provide revenues for federal, state, and local governments to support services, infrastructure, and resources for the public good. The states have a right to levy and collect taxes on goods and services sold within the state. State leaders base their states' right position to tax the intercourse between buyers and sellers on the landmark decision by Chief Justice John Marshall in McCulloch vs. Maryland. Justice Marshall ruled, "The power of taxing the people and their property is essential to the very existence of government and may be legitimately exercised on the objects to which it is applicable, to the utmost extent to which the government may choose to carry it. The only security against the abuse of this power, is found in the structure of the government itself. In imposing

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