Tax the Internet?

Tax the Internet?  Once again government is looking for new ways to generate revenue.  And it should come as no surprise that once again the topic of generating tax revenue from the Internet has come up.

If the unemployment rate reflects the fact that 5 million Americans who were working a year ago, now are no longer working, then it stands to reason that state sales tax revenues have also decreased.  State sales tax revenue has been off between 15% to 25% in some states his most hard by the recession.

But rather than make appropriate budget cuts to reduce expenses, some state government are responding by passing laws to raise new tax revenues.  What an option!  Run out of money?  Pass a law and take more from someone else.   That seems to be the new version of Democracy in Action at all levels of government, state, local and Federal.

So the latest innovation in creative tax legislation is a proposal that State sales taxes should be collected on Internet sales.  Even if your company doesn’t own property in the state to which the merchandise is shipped.  In conventional retail sales,  when you sell outside the state your business is located in, the business is not required to collect state sales taxes.

But what makes the current legislative situation really peculiar is that the legislature in say, New York, can pass a law that compels a company in Georgia to collect taxes for sales and shipments made to New York.  Since the taxing authority is outside the state that the business operates in, it’s not clear what the basis is for being able to enforce such a requirement.

Consumers increasingly use the Internet for retail transactions.  The Internet provides the convenience of shopping without getting in the car and driving around from store to store.  Translates as lower cost.   Sometimes Internet shopping also provides access to hard-to-find items.  Less time wasted running around, translates as lower cost.  Since retail sales taxes are not collected, this also translates as lower cost.  Maybe that’s why Internet sales are doing so well,.

But Internet retailers must ship products to their customers.  Which adds cost.  And to some extent, the real innovation of Amazon.com was the efficiency of their logistics, translate as low cost.  So collecting taxes on Internet transactions has the unintended consequence of increasing costs to the consumer.

The logistics piece, by the way, requires companies like Fedex and UPS to move freight.  So there are real people moving your purchase from a warehouse to your home or office.  And there are complex material handling systems, bar code scanning systems, PLC controls, fork lifts, battery controls and computer data systems required to achieve all this performance.  Mechatronics being a large part of the technology that enables this cost efficiency.

So the current debate is an ethical problem.  Do state legislatures or does the federal government have the authority to tax transactions made on the Interntet?  Does the proposed legislation represent a public safety concern?  Does legislation of this kind open the door to further control of what will and will not be considered “legal” about the internet.

All weighty matters.  And matters that must be considered sooner rather than later.  Without public response, the trend is toward more government, more government control and rising costs.  None of which will get the US economy going in the direction we need to be going.