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Internet and Email Taxes

Apparently several internet taxes proposals are coming our way and possibly soon. According to CNET, bills to levy new or end bans on Internet related taxes are in play including one for an Internet Sales Tax (sponsored by Senator Enzi, Republican Wyoming) and several that address access tax bans. Senator John Sununu (Republican, New Hampshire) is predicting an email tax will follow; an idea that the article claims was floated in 1999 by the United Nations and met with enough criticism to stop it.

Whether or not Sununu is correct or is just hitting a topic that will rally folks against net taxes is unclear. Still one thing jumps out: states are thirsty for revenue. Ecommerce continues to grow. Sooner or later some sort of Internet sales tax will come. And if desperate (and allowed) states will levy net access taxes. So what are the possibilities for an Internet sales tax and/or access tax?

First, as the article notes the Internet sales tax could have trouble because of the wide range of tax definitions each state deploys and the difficulty for a retailer to comply (though the bill would apply only to those with sales of more than $5 million). Nonetheless, the idea of each state having its taxes and each retailer having to sort those out seems unwise and not required according the Supreme Court (though the Court seems to invite Congress to allow taxes on catalog stores and now Internet retailers). Still, if an Internet sales tax is inevitable, some sort of flat Internet tax might be best (perhaps half to the state where the retailer resides and half where the consumer resides).

As for the potential access taxes, this idea gives me pause. Telecommunications and the Internet grease much of our economy and democracy in that the flow of information is relatively inexpensive. Given that the government took more than 100 years to end an obsolete long-distance phone tax and repaid $15 billion in the process, taxes on Internet access could easily have a similar life. In addition, acts that affect people’s access to the Internet and that might put Internet access out of the reach of the poorest part of our society are to be avoided (note that phone taxes already make up about 18% of one’s phone bill according to a Verizon representative a few years ago).

I sympathize with the need to raise revenue. Whether one likes it or not, states tax what we do and provide services in return (one can debate how well but that is the claim at least). And if we want services and need to spend money, having the cash to do so seems wise too. As such an Internet sales tax that puts retailers on an even footing but that does not create a system of expensive compliance may be the way to go. But when states eye what are essentially pressure points such as Internet access which arguably stimulates the economy and an individual’s ability to engage in society, something more than a “we need money” justification should be offered. In short, when access to information resources is at stake, perhaps the baseline should be hands off and rarely would an argument be sufficient to overcome that baseline. As for what that debate would look like, I leave that to future posts and/or your comments.

Last, I am not a tax policy person. There could easily be nuances to the issue of Internet tax systems that I do not see. SO, dear readers, if you see a point this post misses please share it and educate me (and our readership).