RealTime IT News

The End of E-Business as We Know It?

Come Monday, it's a level playing field, taxwise, for e-businesses as the Internet tax moratorium expires without any action by the Senate. And come Monday, "...there's an opportunity for considerable economic mischief," according to one senator.

Still, "I don't think Western civilization is going to end" because the moratorium was not immediately renewed," Sen. Ron Wyden, D-Ore., was quoted as saying.

Wyden and other lawmakers told the Associated Press that it's unlikely governments will rush to impose new taxes.

A scaled back extension of the Internet tax ban was pushed for action in the Senate this week after the House passed the measure on a voice vote Tuesday. But the measure did not address the troublesome sales tax question and the measure was blocked in the Senate, which, like the House, has now recessed until next Tuesday at the earliest.

Sen. Byron Dorgan, D-N.D., objected to the two-year ban, and moved for an eight-month ban to give lawmakers time to consider the impact of Internet tax legislation. But he failed to win approval, and the measure died.

The current moratorium, which does not address the thorny sales tax issue, expires Sunday. That issue has pitted most traditional retailers, including many of the nation's largest chains, against pure-play Internet retailers, whom they say have an unfair advantage.

Rep. Christopher Cox, R-Calif., has been quoted as saying if the temporary ban lapses "all hell may break loose" because some 7,500 taxing jurisdictions could be "lying in wait, ready to pounce" by imposing a wide range of new taxes on ISPs, other service providers, even telephone service.

Meanwhile, a coalition of states is in the process of simplifying their tax codes with the hope that Congress will allow them to collect sales taxes on remote sellers.

"This is no time for Congress to permit a new onslaught of taxes on the consumer, or on the tech sector," Cox said

"Many e-tailers fear that the expiration of the ban on Internet taxes will become a deterrent to online consumers -- additional cost of buying online, thus decreasing the convenience of purchasing through the web," Patrick I Thomas, an analyst at Web measurement firm NetRatings, told InternetNews.com.

"However, online retailers will have to confront the issue and adapt in order to prosper... As the saying goes, there are only two things in life that you can count on, death and taxes. It's very possible that companies who try and run from the impending online tax issue will end up like so many dot coms before them," he said.

A report earlier this month showed state and local revenue losses approaching an estimated $440 billion between 2001 and 2011 as a result of remote sellers failing to collect sales and use taxes. The study was commissioned by the Institute for State Studies and prepared by the University of Tennessee with data collected by Forrester Research.

That's a huge tax pie, and currently states are barred under a Supreme Court decision from forcing an out-of-state business to collect its sales tax unless the business has a physical presence. Most e-businesses have a physical presence in only a few states.

Internet businesses not only fear having to collect and administer sales taxes for the 45 states that levy them, but also they are afraid that with the expiration of the ban, governments at all levels are free to impose new corporate taxes.

"Make no mistake, the current economic slowdown correspondingly has slowed the growth in state and local tax revenues," said Raymond J. Kiting, an economist for an outfit called The Small Business Survival Committee in Washington, DC. "Too many greedy politicians are looking to get their hands on new revenue sources, and the Internet is a major target."

But others say the worry has been blown out of proportion.

"There's been some concern that the moratorium runs out Sunday and that the nation will go into a major crisis. That is not the case," Sen. Mike Enzi, R-Wyo, said on the Senate floor.

Any legislation would be likely to contain "grandfather" provisions that would protect Internet firms retroactive to 1998, a fact that would likely dissuade state legislatures from enacting access fees or other taxes, he said.