The Word On

Internet Taxation

by / April 2, 2001
peter j. ferrara

Peter J. Ferrara is general counsel and chief economist for Americans for Tax Reform. He served in the Reagan administration from 1981 to 1983 and as associate deputy attorney general of the United States from 1992 to 1993.
He is on the Advisory Commission on Electronic Commerce.

"I dont see a basis for taxation on the Internet. Id like to see the moratorium made permanent."

"[State and local level] revenue is soaring; theyre not losing any revenue to the Internet at this point. Secondly, from the perspective of those of us who want to downsize government, we really hope they will lose some revenue."

"Here you have this fabulous technology thats creating a lot of productivity; why do you want to stunt it by putting all these taxes on it? This issue is yet another avenue of taxation. In Virginia over the last two budget cycles, revenues have increased by a third."

"I dont think the technology would be feasible for them to tax the Internet. You would need all this reporting on what people are buying and when theyre buying it. Its a pipe dream to think that they are going to tax the Internet. I think eventually theyll come to recognize that the Internet is not taxable. Its not taxable because of the privacy issue and because its just too easy for people to hop around the world. There will be ways to evade their taxation scheme one way or another."

sen. steve

Steve Rauschenberger is a senator from Illinois and the chairman of the Senate Appropriations Committee. He is also a member of the National Council of State Legislatures.

"A number of us at the National Council of State Legislatures are trying to modernize and update the state sales taxes in such a way that -- in a period of a few years -- would make it possible for us to provide a zero burden system and permit the uniform sales taxing of Internet transactions just like we tax any other transactions."

"Congress might look at a couple of things. Im not sure what changes their minds but, number one, the participation in the Streamline [Sales Tax] Project was much larger than anyone anticipated, so the state interest is definitely there. Number two, NCSL coming forward in less than a year with the second model bill is a fairly significant step. Its never been done before by NCSL and we hope to have the National Governors Association and the rest of the Big Seven endorse the same model legislation, although they havent had a chance to review it yet."

"Its not so much a revenue question, because states are actually in pretty good shape financially. Theres two long-term questions that are much more important than the short-term revenue. The first is the fact that whatever tax system you use needs to be equitable. So if you have a tax system that only captures certain types of transactions and makes other kinds of transactions tax free, you have an equity problem. How can you ask your local bookstore that pays property taxes, hires your neighbors, joins the United Way and sponsors little league teams to live by one set of rules that doesnt have to?"


Annette Nellen is a tax professor in the College of Business at San Jose State University. Nellen chairs the tax policy group for the Joint Venture Internet Tax Task Force.

"The Internet Tax Freedom Act, which created the moratorium, as well as the Advisory Commission on E-Commerce to study and make recommendations regarding the tax issues, will probably have had its greatest effect in elevating and broadening the discussion of the issues involved in applying existing tax rules to e-commerce and the Internet."

"The key feature of the moratorium is that it prevents state and local governments from taxing Internet access (with some exceptions for states already doing so when the act was created) and prevents new taxes on the Internet."

"An example of the confusion is that some new businesses selling goods over the Internet do not think they need to register for sales tax. Also, some consumers are surprised when an Internet vendor collects sales tax. Sales tax is not a new tax, and a vendor with presence in a state selling taxable goods will be required to collect sales tax."


Gregory Turner is general counsel and legislative director of the California
Taxpayers Association.

"Much of the esoteric discussion on ways to tax Internet usage has fallen by the wayside partly because of the Internet Tax Freedom Act (ITFA), but also because this market has shown itself to be a huge engine of economic growth that stretches into all sectors of the economy, not just the dot-coms. That economic growth has produced huge revenue surpluses at all levels of government, including state and local sales- and use-tax revenues. As a result, tax policy that threatens to impair growth will be viewed with a great deal of skepticism."

"At least in California, sales-tax revenue is up significantly, which seems to undermine the notion of deprivation. I havent noticed the states of late arguing that the sky is falling on the sales-tax base as they once did, opting instead to argue equity. I suppose that illustrates the point."

"Imposing a tax on the use of the Internet by way of access charges or bit or bandwidth taxes will always be a bad idea. The suggestion that the Internet, by the ITFA or otherwise, is somehow free of taxation or not paying its fair share is simply false."

"If recent weeks are any indication, I would say we will probably be having this same conversation after the moratorium expires. The recent efforts of the Streamlined Sales Tax Project and the National Conference of State Legislatures appear to have made some progress while at the same time raising more questions than it answered."
Jim McKay, Justice and Public Safety Editor Justice and Public Safety Editor