Is The Taxman Coming To The Internet?
May 6, 1999
Concerned that electronic retailing will cut into sales tax revenues, many state officials want to slap a tax on sales over the Internet. Anti-tax opponents say buying online is like consumers crossing state borders (or the U.S.-Canadian border, for example) to take advantage of lower, more competitive tax rates.
- On average, sales tax revenues account for 32 percent of states' revenues.
- Forrester Research Inc. estimates that by 2003 online retail sales will hit $108 billion -- roughly 6 percent of total retail sales.
- University of Chicago economist Austan Goolsbee estimates that applying current state sales taxes to Internet sales would cut the number of buyers by 25 percent -- and total Internet spending would drop by nearly a third.
- Applying state taxes would cut projected 2003 sales from $108 billion to $76 billion.
Goolsbee found that individuals living in high-tax jurisdictions are more likely to purchase goods online than those living in more moderate sales tax regions.
Critics of the tax-the-Internet movement contend states should vie for residents and taxpayers by competing with one another to lower taxes -- and initiate efficiencies in their governments which would make that feasible.
Source: Michael W. Lynch (Reason magazine), "Run for the Border," Investor's Business Daily, May 6, 1999.
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