Washington’s attitude toward Internet taxation is stupefying. As more and more of the world of communication and commerce move to the Internet, it would seem so would the nation’s tax code.
Instead, Congress and President Obama have both adopted the attitude that whatever takes place electronically should be unfettered by paying taxes on it.
Last week, the Senate, in a bipartisan vote, gave final congressional approval to a bill to permanently bar state and local governments from taxing what consumers pay for access to the Internet. The White House has said the president will sign the bill.
Whether Internet access is considered a utility, such as electricity and telephone service, or a source of entertainment and information, such as television, it receives a tax treatment that few from either segment do.
Though some states, if they have a sales tax, make exemptions for electricity and natural gas consumption, such exemptions are not congressionally mandated. Almost all states that have a sales tax apply it to cable and satellite TV service and to telephone service, both landline and cellular. As consumers move toward having their TV programming delivered over the Internet, it would seem only reasonable to allow states to shift their tax treatment in that direction, too.
Of even greater concern is the ongoing tax protection that online retailers receive.
One trade-off for the nationwide ban on Internet access taxation was supposed to be a provision allowing states to force online merchants to collect sales taxes for their transactions. That proposal, though, got shelved.
This sales-tax exemption gives e-commerce an unfair pricing advantage over its brick-and-mortar competitors. For a Mississippi consumer, that difference in tax treatment equates to a 7 percent incentive to buy an item online rather than in person.
Not only is this bad for the traditional merchants, it hurts state and local governments whose operations are heavily funded by sales tax collections. As these collections decrease due to the growth of e-commerce, pressure grows on state and local policymakers to raise the revenue through other means, such as income and property taxes.
When the Internet was in its infancy, it was argued that it needed special tax treatment in order to not stifle its growth. Those days are long gone. The Internet is not a fledgling enterprise but a firmly established and rapidly growing one. To ignore it as a potential source of tax revenue is both unfair and fiscally irresponsible.
