The lesson was enshrined in a fable over 2600 years ago, yet some still don’t get it today – killing the goose to get the gold inside leaves one with only a dead goose. Put another way, and as has been demonstrated by one high tax jurisdiction after another, greed overreaches and leads to loss.
One effort to spare the goose and stem the damage is the Internet Tax Freedom Forever Act, which would finally make permanent the existing ban on Internet access taxes and on multiple and discriminatory taxes on e-commerce. The moratorium, first enacted in 1998, merely prevents state and local governments from levying taxes on Internet access, and also prevents discriminatory taxes; that is, taxes applied on an additional or higher level on Internet purchases.
Allowing new discriminatory Internet taxes only serves to dampen on-line commerce and the slow the spread of broadband Internet access. A mere extension of the ban would introduce uncertainty into the marketplace, hinder long term investment in the Internet ecosystem that drive innovation and provide a foundation for America’s competitiveness.
But even with the “Internet tax moratorium” it is still possible that the same digital good or service purchase could be taxed by several different jurisdictions. So, one purchase could easily be taxed by the jurisdiction where the good is purchased, again where the merchant is located and yet again in the jurisdiction where the wireless bill for the account used is sent. One purchase with sales tax applied three times, a feast for tax hungry states looking for more revenue to fuel ever higher spending.
The “Digital Goods and Services Tax Fairness Act” would fix this problem by preventing digital goods and services purchases from being subjected to multiple and discriminatory taxes.
Some are so tax hungry they are willing to violate the Constitution in an effort to rake in citizen’s hard earned cash. The so-called Marketplace Fairness Act, a proposal that does away with any requirement that a business have a physical connection to a jurisdiction before it can be required to levy taxes on its sales, is currently pending before the U.S. Congress. If this law were to pass, a person merely calling up a website of a business would be enough to require that business to pay taxes in that state where the caller resides. A discriminatory Internet tax would look mild by comparison.
Part of the U.S. Constitution was written in response to this exact problem, which developed under the Articles of Confederation: States looting across state lines and taxing without representation.
Let’s hope the Internet goose doesn’t get cooked and end the golden era of growth of the Internet economy.
By Institute for Policy Innovation (IPI) Policy Counsel Bartlett D. Cleland