Internet Purchases: To Tax or Not to Tax, Here Are the Questions

Has the growth of tax-free Internet sales hurt state revenues or education funding? Is it "unfair" for sales over the Internet not to be taxed while other sales are taxed? Would imposing new taxes on the Internet do serious damage to the ability of this new form of commerce to thrive? Does the growth of tax-free online shopping pose a threat to traditional "bricks-and-mortar" retailers? This study addresses these and other questions in order to provide state, local, and federal policy-makers with the intellectual and empirical ammunition they need to keep the taxman at bay.

Contents

• Executive Summary
• Introduction: To Tax or Not to Tax?
• Governor Engler's Congressional Testimony on Internet Taxation
• Internet Purchases and Current Law
• Answers to Common Questions about Internet Taxation
  • Has the growth of tax-free Internet sales hurt state revenues or education funding?
  • Is it "unfair" for sales over the Internet not to be taxed while other sales are taxed?
  • Would imposing new taxes on the Internet do serious damage to the ability of this new form of commerce to thrive?
  • What's wrong with the Internet taxation proposal of the National Governors' Association (NGA) favored by Governor Engler?
  • Why does Virginia Governor James Gilmore oppose the National Governors' Association (and Governor Engler's) approach to taxing the Internet?
  • Does the growth of online shopping pose a threat to traditional "bricks-and-mortar" retailers?
  • Why does the 300,000-member National Taxpayers Union (NTU) oppose Internet taxation?
  • Does tax-free Internet shopping disproportionately hurt the poor?
  • Does the Internet hold much appeal or promise to the poor, to inner-city residents, or to minorities?
  • Would widespread taxation of Internet transactions threaten personal privacy?
• Policy Recommendations
  • 1. Extend or broaden the current tax moratorium.
  • 2. Adopt a clear and constitutional nexus standard.
  • 3. Require that any sales taxes imposed on Internet sales be origin-based so that they will be consistent with the U.S. Constitution and prevailing nexus standards.
  • 4. Address broader telecommunications tax issues.
• Conclusion
• Acknowledgements
• About the Author
• End Notes