This story appeared on Network World Fusion at

'Net Insider:

Postponing the inevitable

By Scott Bradner
Network World, 11/26/01            

Much to my surprise we are not yet paying taxes on what we buy over the Internet.

Two years ago when Congress passed a ban on new Internet-related taxes, I fully expected that by the time the ban expired (now) that the government would have figured out how to levy taxes on online purchases and services.

But, in a significant departure from its normal practice, Congress has not done so. Or, if Congress could not figure out a universal way to collect tax money, it would just let the old ban expire. That would let state and local governments go hog-wild figuring out how to do to the Internet what has been done to the phone services - tax it almost to the point of pain. But this month Congress passed another two-year extension of the ban (see story).

I am surprised at the lack of taxes because figuring out how to tax things is part of "Being a Congresscritter 101." I am also shocked because there has been so much pressure at the local level to enact Internet-related taxes. There are occasional lapses where Congress reduces taxes, but those lapses are few and of short duration. Maybe the government reduces taxes so that it can get an opportunity to feel good when raising them again.

I do not expect that the current ban will survive its two-year lifetime. I expect that Congress will come up with some way out of its inability to formulate a taxing mechanism before then, and new legislation will be approved to correct the problem.

The Internet tax issue is more than a bit facetious because it is somewhat illogical to have one, or actually two ways of doing business exempted from the normal tax-full society. There is something off-kilter if your requirement to pay sales taxes depends on the method of purchase. There is no difference in concept between buying a set of drills at the local hardware store or over the Internet. You are exchanging money for drills. Why should there be a difference in taxes?

Note that this is not just an Internet vs. brick-and-mortar store kind of thing. The same is true for mail-order catalogs. Local authorities have tried to get these companies to pay taxes on the sales to customers within the geographic scope of the local authority. A few years ago the Supreme Court said that the requirement was fine, but enforcing it was not, at least for companies without a substantial presence in the local geographic scope. Congress will have to deal with both cases to move forward.

But, facetiousness aside, I expect that Congress will figure out a way to keep the lifeblood of governments flowing even in the new world of the Internet as most congresscritters have gone on to graduate school in the ways of revenue raising.

Disclaimer: Parts of Harvard may have helped in the advanced degrees, but I did not ask them their opinion on this issue.

All contents copyright 1995-2002 Network World, Inc.