WASHINGTON, FEB. 14, 2000-If Congress decides to
lift the current moratorium on Internet taxes, it should let states
and localities tax only those companies with a bricks-and-mortar
presence in their jurisdiction, says
a new paper by
Heritage Foundation policy analyst Adam Thierer.
The best solution would be to keep the Internet completely tax
free, Thierer says. Short of that, policymakers should follow the
precedent set by the taxation of catalog sales, which allows taxes
to be levied only on businesses with a physical presence in a state
or locality. But what won't work, Thierer says, is the proposal
recently issued by the National Governors' Association (NGA), which
urges Congress to allow states to levy taxes on all Internet sales,
regardless of where the sellers are located. The NGA plan would
effectively create a national sales tax that would eventually
extend to other forms of commerce, Thierer says.
"The NGA plan is premised on two myths-that the Internet is a
massive drain on state and local tax revenues, and that it's unfair
to exempt interstate vendors from taxes that Main Street businesses
must pay," says Thierer, Heritage's Walker fellow in economic
policy. "In reality, state and local tax revenues and budget
surpluses are at an all-time high, thanks to a high-tech Internet
economy."
The NGA plan also ignores legal precedent and raises
constitutional questions by allowing states to collect taxes beyond
their geographic borders, says Thierer, who recently debated the
NGA's Director of State-Federal Relations on e-taxes in State
Tax Notes.
The congressionally appointed Advisory Commission on Electronic
Commerce (ACEC), which must offer its recommendations on Internet
taxation to Congress by April 21, is divided on whether to approve
an e-tax or call for making the moratorium on Internet taxes
permanent. The NGA plan currently enjoys the support of several
commission members, but a two-thirds majority is needed to forward
an official recommendation to Congress.
In a related paper, also released today, Thierer explains how
competition and choice in the market are outpacing government
"solutions" to the so-called "digital divide" that some say keeps
lower-income Americans from enjoying the fruits of the high-tech
economy. He notes that Internet access has surged from 6 percent of
the U.S. population six years ago to 43 percent today. Recent news
events confirm Thierer's point: Ford Motor Co. and Delta Airlines
both announced they are giving free computers and low-priced
Internet access to every one of their nearly 400,000 combined
workers.
In a third paper, Thierer and Heritage researcher Gregg
VanHelmond scour President Clinton's fiscal year 2001 budget
proposal and find it crammed with $1.9 billion worth of "high-tech
pork"-everything from $45 million for something called
"tele-mentoring for at-risk youth" to $16 million for "ready to
learn digital television."