Taxing Matters
By Lincoln D. Stein
You've had a few months to recover from the hair pulling, the caffeinated calculations, and the paper cuts. Perhaps you thought you were done with the IRS for another year when you sent off your taxes and settled down to your keyboard. But they followed you.
Internet taxation—the phrase alone is sure to send shudders down your spine, conjuring up images of Internet connection fees, sales taxes for online purchases, drivers' licenses for Web surfing, and real-estate taxes on domain names. But should the Internet remain a tax-free zone in perpetuity, or should we accept the inevitability of an invasion by the revenuers?
Tallying Taxes
Different people mean different things when they talk about Internet taxes, and it's important to sort the terms.
E-commerce sales tax. Such taxes collect a value-added toll on business-to-consumer and business-to-business sales. A value-added tax on consumer and business sales has long been a staple of state and local government revenues. The sales tax—typically a small percentage of the total cost of each business transaction taking place in the municipality—contributes significantly to state budgets. For some American states, such as Alaska and New Hampshire, the sales tax is such a significant part of the budget that they don't (yet) collect a separate income tax.
Internet connection charges. State and local governments are used to collecting taxes on metered services for everything from gasoline to water.
