Wednesday, September 5, 2007

Continuing the Internet tax moratorium

As Internet use continues to spread in the U.S., the government should pursue policies that help promote investment in, and greater consumer access to, faster and more robust broadband services. The current Internet tax moratorium is one policy that Congress has enacted to help make the internet a universally accessible, free, and open platform capable of delivering a rich variety of services to consumers.

With that moratorium due to expire this November, Google recently joined Don't Tax Our Web, a coalition of companies and associations dedicated to extending the current moratorium and reducing barriers to the Internet's continued growth.

The current moratorium prohibits three things: state and local taxation of Internet access, multiple taxes on a single e-commerce transaction, and taxes that discriminate against online transactions. We support a permanent extension of the moratorium because multiple or discriminatory taxes on internet transactions could damage internet-based commerce, a critical and growing component of our economy.

What are these "multiple or discriminatory" taxes, exactly? Imagine a web user who purchases a music file (maybe "One Week" by the Barenaked Ladies, which was released in 1998, the year the original moratorium was signed into law by President Clinton). Under current law, the transaction couldn't be taxed at a higher rate than if the sale had occurred in a physical store or through any means other than the Internet. In addition, the moratorium prohibits more than one state, or more than locality, from taxing the transaction. Protecting internet-based transactions like this from multiple and discriminatory taxes makes a lot of sense to us.

Keeping Internet access tax-free is also another way that government can help further the growth of the web to all corners of the U.S. At a time when American policymakers are working to increase broadband penetration rates and improve the quality of broadband services to consumers, we believe that increasing barriers to access -- whether they are created by the government or by the private sector -- will only frustrate our common goal of greater access to better broadband for all consumers.

We look forward to working with the members of Congress championing this issue and with the Don't Tax Our Web coalition to extend the internet tax moratorium.


Daniel said...

Allowing taxes that discriminate against online purchases would be an awful idea. But the current moratorium extends also to taxation of internet access.

Internet access is a service, just like a haircut, legal services, going to the dentist, getting a massage, etc. There is no good reason why internet access should be exempted from (at least) otherwise uniform taxes on services. A state that wanted to implement something as simple as an uniform subtraction-method value-added tax would be impeded from doing so under the current moratorium.

In fact, doing so would harm efforts to move sales tax codes toward the state in which its hardest for them to be captured by special interests: uniform percentage rates.

There is no reason why the moratorium needs to prohibit internet access taxes except to the extent that they treat internet access unreasonably relative to other services.

Surely Google can engage in a deeper level of analysis than simply "it must be passed, unamended."

Michael A. Reynolds said...

In response to Daniel, any pro-taxation amendment to the bill would create a barrier to entry within the e-commerce market.

What sort of barrier? Imagine an individual wants to sell their unique, hand-made widgets online to people across the US. Under current laws, it's pretty simple to do this. If the laws were changed, the person would have to track the tax laws in 50 states, and possibly even countless municipalities. That's an undue burden, which is a major reason why the bill was passed in the first place.

Such an entry-barrier would create a market where only companies and retailers large enough to track tax law and other regulations across the nation would be able to operate; a change that would fundamentally alter the online markets and the Internet itself.

Jackson said...

This fight is similar to the one my organization is having against credit card companies with regard to interchange, the hidden fee that Visa, Mastercard, PayPal, etc. charge to merchants, both on and off-line. In actuality, consumers are the ones that foot the bill.

As you point out, a lift in the online tax moratorium would be very difficult for the small businesses out there.

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