- The Washington Times - Saturday, October 20, 2001

Tomorrow, the federal ban on Internet taxatation expires which means Americans could soon find their online purchases subject to state and local sales taxes, as well as "access taxes" of up to 10 percent to 15 percent of their monthly Internet service fees simply to get online. Even though online retailers often have no physical presence in the states and localities where their customers live and thus, unlike conventional retailers, who maintain a physical storefront, do not cost state or local government anything in terms of police, fire protection, emergency services, etc. state and local governments nonetheless are hungry to sink their fangs into this potentially huge vein of revenue. They want online vendors to calculate and collect sales taxes from their customers all over the country and then remit those taxes to the state (and, where applicable, town, city or county) in which those customers live. So there's a double whammy here: Not only would online purchases be taxed, immediately liquidating one of the primary advantages online retailers have against their conventional competitors but these private businesses would, in addition, have to spend their own time and resources calculating, collecting and keeping track of those taxes for potentially thousands of state and local governments (there are more than 7,000 states, counties, cities and towns with their own sales taxes).
The phone companies likewise see an opportunity for themselves to have Internet access itself taxed. Currently, Internet users pay a set monthly fee to an Internet Service Provider (ISP) such as America Online, and get unlimited access in return. Through Instant Messaging and e-mail, Internet users are effectively able to circumvent exorbitant long-distance phone charges, yet still remain in daily, direct communication with friends, family and business contacts all over the world. The phone companies have chafed over this for years and would love to put the kibosh on it.
The Internet and Internet commerce, by side-stepping the bludgeon of taxation and doing an end-run around the inefficiencies of the government-encrusted conventional marketplace, drove the surging economy of the late 1990s and the Internet remains one of the single biggest growth engines of the American economy, generally speaking. Taxing and regulating the Internet, as some politicians and many grasping bureaucrats within state and local governments are so eager to do, would only exacerbate the current economic downturn. It is absolutely the last thing this country needs right now.
Congress has not as yet extended the moratorium on Internet taxation, passed in 1998, in part because of the events of Sept. 11 and the resultant immediate shift in focus to terrorism and the fight against it. Nonethelesss, as of Sunday, Internet taxation becomes a definite possibility once again and Congress should act immediately to prevent it from ever happening.


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