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Taxation of the Internet

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Taxing the Internet is necessary

The internet or the Global Electronic Infrastructure has now been around for about a decade already and it has already changed how we live our lives. Over the next decade, we will find that almost every aspect of our lives including education, health care, work and even leisure activities will be affected. We have already seen this occurring with the increasing use of: cell phones, pagers, GPS systems, PDA’s, and many more gadgets that we use in our everyday lives. The internet is a vast collection of information that consists of millions of web pages, news articles, audio and video clips, etc. There are several uses of how one can use the Internet for example students who have access to a library all the way across the globe or students who take their classes at a university on the other side of the country, doctors who are able to help other doctors and their patients and even a new way for consumers to purchase goods. Over the past few years, the Internet has developed into something that none of us could have ever imagined, a place where goods and ideas can be exchanged with the slightest of ease. It has opened up a new door into commerce online shopping. Many companies are now opening up their doors exclusively onto the internet. Companies such as,, as well as many others are all internet-based. Under the Supreme Court’s Quill decision, remote sellers, such as an internet retailer are not required to collect local sales tax for the sales made in the state where the seller does not have a physical location. This absence of a physical location for online retailers gives an unfair advantage over the traditional local shops. In 1998, congress passed legislation called The Internet Tax Freedom Act, which imposed a three-year moratorium on new internet access taxes and on discriminatory taxes on e-commerce (E-Fairness). This Act also set up the Advisory Commission on Electronic Commerce to complete a report and devise a plan on whether the internet should be taxed and if so how (Lilly “Citizens for a sound economy”). This three-year moratorium, placed a policy of no taxes on the internet, until April of 2001. This was done to make sure that the E-Commerce market was able to properly grow and expand. However, now that it has grown and has stabilized out it is time to place a sales tax for all internet transactions that take place on this global market-place.

Over the past few years, the internet and E-Commerce market has been experiencing a rapid growth period. Many people have argued that the government should not tax something that is growing at such a high rate. If a tax is imposed, then the internet economy may slow down to the crawl that is characteristic of many other heavily regulated areas of the economy. The businesses are growing and we have seen that in the last six months that the internet economy has been slowing down. This is a sign of a stabilizing market or a market that is mature now. When the market becomes stable as it is seen, the government should impose the tax. The companies that are left in the industry and the consumers who are purchasing the goods can afford to pay a tax. A large majority of the dot-com startups have been kicked out of the competitive high tech industry. However, larger and more stable online companies such as or have been able to maintain their position in the industry. This shake out of smaller less stable companies shows that the economy is maturing and is ready for a tax.

According to the International Data Corporation in a study in 1999 internet commerce would exceed to roughly $1 trillion worldwide by the year 2003 (bonnet “Sales tax and the internet”). Approximately, seven percent of all U.S. retail sales will be conducted online by the year 2002 (bonnet “Sales tax and the internet”). A recent report from the U.S. Dept. of Commerce, shows that sales from many e-commerce companies has been increasing steadily for the past one year (US Dept of Commerce Retail E-Commerce sales). The internet generates large quantities of sales that have been going untaxed. This gives a competitive advantage to the remote sellers to conduct business online and puts them to enjoy a tax haven. By doing this, more businesses will move all their transactions to the internet just to avoid having to pay the extra sales tax. This leaves behind the traditional “brick and mortar” retailers to compensate by paying higher taxes and they are put at a considerable disadvantage. Not only are the traditional shops losing out, but also the local and state governments who are the recipients of tax money. State and local governments rely on sales tax to fund their budget. Programs such as education, police, fire, and transportation are all funded completely from sales tax. Without sales tax these programs are

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