Internet Taxation Woes Headed Your Way

If you sell anything online, own an ISP, produce online content, send electronic data, or rely on Internet connectivity for your paycheck, then you better pay attention to a movement that states and local governments are pushing for.  The states and local agencies are trying to achieve an ban on Internet taxation.  The truth is that it is already hard to know just what is being gone after, but the two most common taxes are of course "SALES TAX" on online shopping, and what is the equivalent of more "ACCESS TAXES" on ISP’s.  In theory you could even ultimately end up with an email tax if this were allowed to go unchecked.

This is not a republican or a democratic issue at all.  It’s a "state and local" dragnet in a fight to get their hands on a higher tax base.  The problem with this is that it would require businesses to know not just their own local tax laws, but they could literally be on the hook for taxes 1,500 miles away where the company has no offices but has a customer who purchased something.  CNET has a great article on this, and you should definitely read it.  The sad thing is that this only scratches the surface.

If you are a business owner or even a buyer of ANYTHING online or pay for cable, broadband, wireless, or the old dial-up Internet access you are all in the same boat.  It is your responsibility to find out your Congressman’s (Congressperson’s) position on this.  There is absolutely nothing good that will occur from this except that individuals will pay more for every service and good, and businesses will literally be bogged down even more in regulatory issues around the country.

If your Congressperson gives you the "undecided answer" or the position that "this Internet tax ban may need to end" then they need to be asked how they’ll vote when they have petitions galore flooding their mailbox will influence their decision.  The only winner here would be state and local tax authorities and of course all the attorneys that have to be hired to fight extra taxes on business.  Physical goods have inflation, yet this will be a mystery "taxflation" on anything on the Internet.

The National Governors Association is part of the lobbying trying to overturn this ban, which would of course benefit their states.  The truth is that many of the backers hoping to get the ban lifted will claim that if the ban is extended it will force them to bump up taxes elsewhere.  That is hogwash, they know it and you know it.  This comes up every few years, and it is important to make sure that this ban never gets lifted.  The truth is that Internet taxes already exist, but this would be an all out assault on small businesses and large businesses by state and local governments.  Once again, this is not a partisan event but an opening up of more taxes by local and state governments that will not be good for any businesses or citizens.

eBay (EBAY) has been under IRS pressure to divulge information to the IRS over those who sell more than $5,000.00 in auction goods per year on their site.

If Amazon.com (AMZN) had to collect taxes for every single state out there, including states where they have no operations, what do you think that does for processing fees.

Yahoo! (YHOO), Earthlink (ELNK), Google (GOOG), and countless more will all be under fire if this Internet tax ban is removed.

If you buy goods out of state at a physical location, it is very rare that there "tax exemptions" unless it is shipped out of state and even then most establishments make the buyer pay the local sales taxes.

This will literally be a mess for everyone if the tax ban is lifted and any company whose main operations come from any sort of sales or communications will see their costs go up.  The costs won’t just be in the obvious taxes, it will be in the interpreting if their is truly a liability in the myriad of mystery bills they will start receiving in the mail.  It is easier than ever to make your voice heard by your representatives, so don’t take a "wait and see" attitude on this issue.

Jon C. Ogg
May 24, 2007

Jon C. Ogg can be reached at [email protected]; he does not own securities in the companies he covers.