- The Washington Times - Thursday, May 15, 2003

President Bush continues working for tax cuts to stimulate the economy, but some California legislators have a different agenda. Last week, the state Senate approved a bill to collect sales taxes on purchases made over the Internet. In our view, the time is not right to consider new taxes — if there ever is such a time.

The sting on businesses has begun already. Three weeks ago, California’s tax bureau launched an audit on and fined Barnes and Noble $1 million for not collecting sales taxes from commerce on its Web site. Barnes and Noble is based in New York, but California regulators claim jurisdiction over the company’s online revenues because it also operates stores in the state. That this could deter new businesses from setting up shop there doesn’t seem to have occurred to local politicians. But worse for consumers, as more states make similar grabs for cash, the potential for multiple taxation on transactions increases, depending on where a company’s headquarters are located, where it has fixed-site outlets and distribution centers and where a purchaser lives. The Supreme Court has ruled that states cannot tax mail-order purchases across state lines — only within state lines — without Congress changing the law.

The issue crosses a few traditional political lines, especially among Republicans. For example, some pro-business and anti-tax forces are pitted against each another. Developers and bricks-and-mortar retailers argue it is unfair that online retailers that compete with them can dodge sales taxes. It’s not hard to see what the fixed-site merchants are worried about; e-commerce retail revenues in the United States are expected to total $96 billion this year — sales that a few years ago would largely have been made in stores. The big sum also makes clear why bureaucrats are eager to tap the market for taxes, especially in California, which has a $35 billion deficit.

There are valid reasons against Internet taxation not directly related to commerce. The vitality of the Internet, what has encouraged its speedy growth, is freedom. Internet taxation sets a precedent that leads to bureaucratic traffic controls on the information highway. Rep. Chris Cox, Republican of California, in January introduced legislation to permanently ban taxes targeted specifically at Internet sales, online access and multiple taxation. A previous law authored by Mr. Cox, the Internet Tax Freedom Act, expired in 2001.

Some day in the future, perhaps an Internet sales tax can be revisited during a comprehensive overhaul of the entire tax code. But we’re not going to hold our breath that broad tax reform will come any time soon. In the meantime, new taxes only can hurt an already soft economy.

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