Don't Tax the Internet!

By David F. Nolan

The Advisory Commission on Electronic Commerce should reject any proposal to tax the Internet. As an investment in America's prosperity, the Internet should be protected as a tax-free zone forever.

"Politicians shouldn't tax the goose that is laying the golden egg for the American economy," said Steve Dasbach, the party's national director. "E-commerce is creating jobs, growing the next generation of American business success stories, and generating profits for millions of American shareholders.

"To keep this boom going, politicians should keep their greedy hands -- and their destructive taxes -- off the Internet."

According to BizRate.com, e-commerce generated $3.35 billion in revenue this holiday season, a four-fold increase over last year. And experts say online sales could reach $100 billion by 2003.

In response, politicians -- including the National Governors' Association -- have demanded that e-commerce be taxed, arguing that state governments are "losing" sales tax money when people shop online.

A federal Advisory Commission on Electronic Commerce is now studying the issue, and will present a recommendation to Congress by April 21, 2000. Options include extending the current three-year moratorium on Internet taxes; creating a new national sales tax; or forcing cyberbusinesses to collect local and state sales taxes from every online shopper.

For Libertarians, the answer is obvious, said Dasbach: Give the Internet a permanent tax exemption.

"The Internet's current tax-free status makes it a nationwide Enterprise Zone that benefits everyone -- as demonstrated by the skyrocketing sales figures this Christmas season," he said. "Instead of figuring out how to exploit the Internet for the benefit of politicians, we should consider how to protect it for the benefit of all Americans."

And even if you're not an online shopper, said Dasbach, there are many good reasons to oppose an Internet tax:

• State governments don't need the money. The 50 states ended 1998 with $11 billion in surpluses. And state revenues as a percentage of GDP have soared from just 6% in 1960 to 12.8% in 1998 -- and are still growing at a rate twice as fast as the rate of inflation.

• It could harm the growth of e-commerce. In an online poll of shoppers, 60% said they would buy less if forced to pay taxes. And a study by Austan Goolsbee of the University of Chicago Business School found that the e-commerce market could shrink by 24% if businesses were forced to collect online taxes.

• Americans don't want it. As of November, 21,000 Americans had written to the Commission opposing online taxes -- while only 1,300 supported the idea. That's a ratio of 17-1 against Internet taxation.

• It would be a logistical nightmare. There are between 6,000 and 7,500 unique sales taxes levied by different cities, states, and counties nationwide. To force every e-businesses to track and collect such a bewildering array of taxes would be unfair.

• It's unconstitutional. The U.S. Constitution gives Congress the sole power to regulate interstate commerce -- which means that state governments have no authority to collect taxes beyond their borders. The U.S. Supreme Court has affirmed this principle at least twice, when it struck down laws forcing out-of-state businesses to collect sales taxes.