Internet Expansion

Internet expansion brings to the forefront many issues. These issues include Internet taxation, as well as taxes to other remote sales. Current law does not allow the remittance and collection of sales taxes on companies who do not have a presence or nexus in that state. This leaves many Internet transactions tax-free and prompts states to address the issue of revenue loss and the effect Internet growth has on revenue collection.

Background

In 1999, the National Conference of State Legislatures (NCSL) and the National Governors Association tasked state revenue departments with the responsibility of evaluating the sales-tax system, as it existed at that time, and to radically simplify the system (Field, 2005). Online retailers have long fought against such moves. They have done so both because of the complexity of the various states tax codes and because whichever company would first require its customers to pay sales taxes would face a competitive disadvantage (eWeek, 2003).

Argument Against Internet Sales Taxes

Remote Sales and Taxation Issue

In the case of Quill Corp. v. North Dakota, the Supreme Court ruled that only states that have a substantial nexus could be made to remit and collect use taxes. A Ў§substantial nexusЎЁ has been defined as a physical presence and does not include companies whose only connection to the state is through phone, Internet, or mail. In the Quill decision, the court ruled that requiring collection of sales taxes would create an unconstitutional burden on commerce because there are too many differences in tax rates, requirements for record keeping, and exemptions allowed.

Uniformity

Before any taxation is imposed upon any e-business, there should be uniform definitions of exactly what types of sales are to be taxed and what is not. Currently, the 45 states that tax sales have several differing (and sometimes conflicting) definitions on what constitutes a sale that should be taxed. In the Internet environment, this differentiation creates entirely too much confusion and administrative burden with recordkeeping and audits for e-businesses to collect sales taxes for every sale made. If consumers are taxed on Internet sales, the taxes should show up on the consumers total sale amount. For instance, it would be unfair for consumers to have paid by credit card for a purchase online that is then not sent (held hostage) until the consumer pays yet moreЎXin the form of sales taxesЎXto complete their purchase.

Does the state want to limit where and to whom many small business e-businesses will sell? Without a doubt, taxation of e-businesses and/or e-consumers will result in a greater tax administrative burden. Most likely the largest impact will be on the small e-businesses in both business-to-business and business-to-consumer transactions. It would be extremely difficult for taxation to be fully implemented on e-commerce at this time, with so many differing tax laws encompassing a large variety of tax jurisdictions.

This burden is further aggravated as state governments and courts extend the substantial nexus concern to encompass much larger base of possibilities. Sales taxation of e-commerce is not acceptable, unless several things are changed.

Growth

The growth and success of the Internet as a tool for expanded commerce and the free flow of ideas are directly attributed to the government's 'hands off the Internet' approach as represented by the Internet Tax Freedom Act. Consumers have never experienced the explosive growth of a new technology like what they have enjoyed with the Internet. It would be a mistake to risk slowing that growth and stunting the Internet's potential with unnecessary government rules and regulations.

Taxation

Taxation allows the governmentЎXfederal, state, and localЎXto collect revenue for public services. Current taxation policies rely on the premise that every citizen should support (by paying taxes) these public services in their states and local jurisdictions, with either state income taxes or state and local sales tax. Sales taxes are used to fund services such as police and fire protection that is not used by out of state online businesses. The role of government is to create an environment in which entrepreneurs can flourish. E-commerce is just beginning to build momentum representing only approximately 2% of all sales transactions in US. Imposing an Internet sales tax would impede the progress of e-commerce. Do states really want to nail down tax revenues and at the same time stall additional growth of a much more efficient marketplace than the traditional brick-and-mortar