CIO - I'm such a poor horse picker that thoroughbreds I bet on last week are still running. My poker skills are a little better, and I confess that now and then I play online and even win a bit. But as you probably know, online gambling isn't legal in the United States, and we electronic card players are forced to take our business to digital casinos based in the Cayman Islands or other offshore venues. The good news is that Congress is considering a bill that would bring Internet gambling back to the U.S.A. The bad news, no surprise here, is that it would be taxed.
The gambling tax is just one of a bevy of proposed levies aimed at the wallets of Internet shoppers, gamblers and etailers. A separate bill in Congress would essentially end the sales tax exemption for Internet sales, which states and cities say costs them billions of dollars a year in lost revenue, but saves shoppers serious money.
Meanwhile, the recession-driven drive to tax the Web has also mobilized the giants of ecommerce and their allies in Congress. In an unusual show of bipartisanship, Virginia Democrat Rick Boucher and Texas Republican Lamar Smith have introduced the Digital Goods and Services Tax Fairness Act of 2010, which would make it extremely difficult for states to levy taxes on goods or services purchased over the Web.
One provision of the Boucher-Smith bill would force state legislatures to hold up or down votes every time a state agency attempted to tax anything sold via the Internet. If, for example, California's Board of Equalization decided to tax, say, digital music sales, an action the agency could now take without benefit of enabling legislation, the state legislature would have to pass a law specifically authorizing that measure.
That would, of course, politicize the process, and in the current anti-tax climate even lawmakers who think a tax on a particular item or service might be a good idea would be hard-pressed to vote for it and it could be vetoed by the governor.
Las Vegas in your living room
Four years ago, Congress banned online gambling sites in the U.S. and made it illegal to transfer cash to offshore digital casinos. That ban has worked about as well as Prohibition did.
Anyone with a bit of ingenuity can circumvent the prohibition on cash transfers, and online poker and other games are flourishing. Given that reality, and the need to raise revenue, a pair of bills to repeal the ban and allow the Internal Revenue Service to tax online gambling businesses are working their way through Congress. The bill would also allow the government to tax the winnings of individuals, in much the same way winnings at a race track are taxed today.
Supporters of the bill say it could raise as much as $42 billion over ten years.
With the mid-term elections just a few months away it's hard to handicap the chance of passage for any potentially controversial legislation. But the Internet Gambling Regulation, Consumer Protection and Enforcement Act was co-sponsored by 70 members of the House, including, Barney Frank (D.,Mass.) the influential chairman of the Financial Services Committee, and passed its initial hurdle in committee by a vote of 41-22, with members of both parties in support.
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