News

Nothing But Net/Mark McFadden: E-commerce Ain't Easy

• By Scott Bekker
• March 27, 2000

Recently a high-profile, expensive, government commission on e-commerce taxation broke down into cliques and finger pointing -- behavior that would have been typical of a high school dance. The commission, officially known as the Advisory Commission on Electronic Commerce, finished a year of contentious and unproductive meetings in late March, by failing to reach any consensus on how to apply sales taxes to Internet retail transactions. In fact, the only agreement the do-gooders reached was a lukewarm statement of supporting access to the Internet for the economically disadvantaged.

Is it any surprise? Clearly, local and state governments stand to lose more and more revenue as commerce moves to the relatively untaxed online world. The commission -- which is expected to simply rubberstamp an extension to the current Internet tax moratorium -- eventually broke down in an absurd cacophony of special interest squabbling.

One of the best examples was a proposal put forward by those representing the online world of e-commerce. These delegates proposed that the sales of digital goods and services would continue to be unfettered by taxes. If Microsoft or America Online wants to deliver products to your PC over the Internet, according to the online companies, they should be able to do so without being taxed. But even that wasn’t enough.

Giving digital goods and services special status seemed unfair to this group, so the team proposed to prohibit taxation of "nondigitized counterparts" -- for example, books, CDs, and software. By extension, if digital data have no advantage over physical data, then why should data transported over fiber or cable have an advantage over data transported by a Teamster?

Following this logic to its absurd conclusion, the group then suggested online retailers should have the option to have real, brick-and-mortar stores in any state they choose without encountering taxes. Amazing. If I want to avoid charging sales taxes, according to this proposal, all I need to have is a Web server.

State and local government must find a way to reform the ancient and regressive systems collecting taxes on sales of retail purchases. Without a consistent, national reform, a solution to e-commerce taxation is impossible. Online retailers need to take responsibility for their industry instead of trying to carve out further special advantages. By pretending that a Gateway computer store in a suburban shopping mall is somehow different than online consumer electronics stores is the e-tailers' way of avoiding responsibility to their community.

Those enterprises in or moving toward e-commerce will have to keep a way eye on the politicians. Just as technology changed the retail and commerce world in an instant, so too could the unintended effects of thoughtless legislation. An easy solution is not at hand because e-commerce ain't easy.