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This morning’s edition of USA Today reports “Most businesses want tax-free shopping online, CFO’s say.” Unfortunately, the obvious conclusion is misleading: a moratorium does not mean tax-free.
An oft-repeated mistake in the debate over Internet taxation is that the existing moratorium on new or discriminatory taxation makes Internet shopping tax-free. In fact, all manners of taxes apply. For nearly every Internet purchase, consumers are obligated to pay a use tax. In states where the retailer has a physical presence, the consumer pays a tax at the time of purchase. Purchases from online companies that do not have a physical presence in a state are subject to taxation – however, most states fail to effectively collect these taxes. Further, Net users already pay taxes for online use by local and state telephone taxes, a 3% federal excise tax, and a universal service charge.
An Internet sales tax or any discriminatory tax is unnecessary and burdensome. At a minimum, there are more than 7000 tax jurisdictions across America.
Senators Allen and Burns have introduced recently legislation to extend the existing prohibition against new or discriminatory taxation. Fortunately, there are some lawmakers who have the right idea. At CSE, we applaud this effort to prevent new or discriminatory taxation of electronic commerce or the Internet.