Internet Taxation The passage of the Internet Tax Freedom Act, on October 21, 1998 there has been an intense debate on whether to tax or not to tax Internet purchases. The conservative side is opposed to Internet taxation saying that it is too costly to collect tax on Internet purchases. They also believe that since Internet retailers do not have any of their operations in all the states, not every state should receive the sales tax made on the purchase. On the other hand, the liberal believe that taxation of the Internet should be lawful because states are losing valuable tax bases to Internet purchases. They believe that at current rates of online shopping, states are losing millions of dollars annually that are used for public roads, police protection, and education.
Usually when people pay more they expect something in exchange. So taxing information and intangible goods does not seem like a wise move to make, unless there is a way of speeding up the internet speed and/or making internet access faster. Customers are just not going to pay more for less. This assignment has made me aware of what internet taxation is and informed me about the major controversy over it. I now know that there are many states in the U.S. that charge customers internet taxes.
According to Congressional Digest, electronic commerce has enjoyed unfair advantage for many years by not having to acquire some taxes. The government is mainly responsible for this one-sided playing field toward online sellers. Many authorities believe that the Internet is essential to high productivity and economic growth and that preservation of the Internet potential is important. Indeed, president Bill Clinton signed the Internet Tax Freedom Act law in 1998 to prohibit any Internet access taxing – extended by succeeding presidents ever since. Based on the current tax laws, online store merchants collect sales tax from in state consumers as similarly as “brick and mortar” stores charge sales tax when customers come into their stores.
With a potential new taxable income, politicians are doing everything possible to pass the necessary laws to make online retailers charge sales tax. Regardless of the location of the retailer headquarters, the online stores would have to suffer loss of some of their sales, especially ones based on the lower price sticker. With the legislation that has been passed, the best outcome would be to resolve the matter with a sales tax for all online stores based on its state. Online shopping started out just like every other thing on the internet, with little or no restriction or fee. It stayed that way until the late 1990s.
Internet Taxation The advent and expansion of the Internet have brought the issue of the application of state and local sales taxation to Internet, telephone, catalog, and other "remote sales" to the forefront of the policy debate. Under current law, states cannot require corporations without a substantial presence within their borders to collect and remit sales taxes. While all states do require residents to remit the taxes owed in the form of use tax payments, few people send in use tax forms, rendering remote sales essentially tax-free. The revenue loss due to the lack of taxation on Internet sales has been minimal thus far; however, states are concerned that the growth of the Internet will lead to a substantial drain on revenue. After extensive research and consideration, the committee recommends against implementing a tax on Internet sales transactions.
Who do you tax? How is it collected? Can taxes be collected from a sale that was made in another state, and what is considered a substantial “nexus” in the buyers state. Because 75% of the American population have access and use the Internet (Don’t Tax the Internet) this is an issue that affects the majority of Americans. According to an article published by the Citizens For a Sound Economy, “State and local access fees could add 20-25% to the average Internet consumer’s bill … that may not sound like much in Washington, but it could strand millions of low-income Americans on the wrong side of the digital divide” (Don’t tax the internet).
An estimated $23 billion was forgone because of the lack of reporting. Reporting these taxes is not the only problem (Yang 22). Another issue arises between the online retailers and brick-and-mortar business owners who believe the tax-free purchases hurt their business. The problems created by this issue, if fixed and enforced, could help fix many financial problems for state and local businesses. What is Congress doing to alter the problem?
According to China Internet Network Information Center (CNNIC)¡¦s 2005 report, 94 million internet user and half of them are using broadband connection. China now has 4 internet-based companies listed in NASDAQ. As they reported profit since the SMS business introduced in 2002, many economists think there will be an internet technology boom in China again. IT industries in developed countries now are facing both challenge and opportunity since many mergers and acquisition happened in west countries from Chinese maker. That what will happen in China on internet technology in the next 10 years will affect every international business around the world.
The current feeling behind internet taxation is pretty mixed between the people, businesses and the states. For instance the states are pushing for more aggressive taxation for e-commerce transactions to hopefully help bring some business back to the states during this economic downturn. On the other hand businesses are more worried about how transactions will be taxed ... ... middle of paper ... ...e some of these articles were written and there is readily available free or low-cost software for companies that calculate tax rates for businesses that take part in e-commerce transactions. Seeing as how many retailers participating in e-commerce transactions don’t have a physical presence or nexus it makes sense to tax the buyer of the product by the tax rate where the item is purchased. If a residence based tax system was put in place that means the tax rate would reflect where the businesses headquarters are, and this would prove to be inefficient because many businesses would relocate to tax-free zones to avoid the taxes.