title: Postponing the inevitable

by: Scott Bradner

Much to my surprise we are not yet paying taxes on whet 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, i.e., now) they would have figured out how to levy taxes on on-line purchases and services. But, in a significant departure from normal congressional practice, they have not done so. Or, if they could not figure out a universal way to collect tax money they would just let the old ban expire and state and local governments would 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, on November 16th Congress passed another 2-year extension of the ban. (see http://Thomas.lcs.gov, search for HR 1552)

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

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

The above 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 out of 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 net. You are exchanging money for drills. Why should there be a difference in taxes?

Note that this is not just an Internet vs. physical store kind of thing. The same is true for mail-order catalogue companies where you call them up to place the order. Local authorities have tried to get these companies to pay taxes on the sales to customers within the geographic scope of the local authority. The Supreme Court a few years ago 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 in order to move forward.

But, facetiousness aside, I do expect that Congress will figure out a way to keep the life-blood of governments flowing even in the new world of the Internet since 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.