Internet taxation mess

By Fred McClimans
Network World Fusion, 06/18/01

So the Bush league has accepted a Senate compromise on Internet taxation that "postpones" taxes on Internet sales. Rather than showing true leadership, this just shows was a politically naīve society we've become: The plan will mainly prove to be a tax dodge since it will likely never be put into action.

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To start, the measure, which would deal with the end of a ban on Internet taxation in October, doesn't take effect until 2006. Who knows what the political climate will be like at that point? Second, the plan is based almost entirely on the notion that the 50 states can simplify their existing sales tax codes to meet the demands of online retailers. This, my friends, will be no easy task. It will require 50 states to agree to a simple definition of goods and services and either a national or single per/state rate. Good luck. Given that sales taxes for brick-and-mortar sales vary considerably from state to state (and even on a county-by-county basis in many states), I think a universal sales tax is extremely unlikely. States with local sales taxes will face an even harder hurdle.

Even if this can be accomplished, there is still the issue of defining a point of presence within a state to trigger the collection of sales taxes. Is a point of presence an office? A Web server? A distribution warehouse? While these issues are relatively clear for brick-and-mortar firms, they are not so clear for online firms. It is also unclear if the plan can be implemented on a state-by-state basis if an overall agreement between the 50 states cannot be reached.

Ironically, we are now in a position of asking the governments of 50 states to accommodate the online industry. These are the same online firms that claim this is too difficult an issue to deal with (never mind that good old mail-order firms - a decidedly non-tech group for many years - have somehow figured it out).

Hmm ...I wonder which would be easier, changing the political tax codes of 50 states or asking online firms to use some of their computing power to figure out taxes on their sales?