E-Taxes: The Crisis That Isn’t

Call it the voice of desperation.

When asked by a local television station how to account for gross-receipt tax decreases in his city, Albuquerque, New Mexico mayor Jim Baca said, “That’s really attributable to a couple things. One is Internet sales, which are not taxed.”

Does Baca know something the rest of us haven’t realized? Has e-commerce found a secret nirvana in Albuquerque, like the aliens in neighboring Roswell? Is New Mexico ground zero for the mass migration of Kmart shoppers to BlueLight.com, and for a rush on online auto sales, appliance buying and grocery shopping?

For months, civic leaders, state legislators and selected naysayers have decried a tax-free Internet as the precursor of everything from municipal chaos to the end of garbage collection as we know it.

Somehow, the chorus claimed, if the Internet continues to be lax about adding taxes to online purchases, city and state coffers will be depleted as Americans shift their buying strategies en masse to online merchants.

The response from struggling e-tailers: “We wish.”

Come on, Mr. Mayor. Is it possible you may be trying to justify some poor fiscal management by blaming dot-coms? Read the headlines — tumbleweeds are a bigger threat to Albuquerque’s well-being than a tax-free Internet.

Taxes and More Taxes

Earlier in February, our elected officials in Washington, D.C. re-introduced a bill to extend the Internet Tax Freedom Act, set to expire in October, for another five years.

The philosophy goes something like this: If we allow the Internet to grow unfettered for a few more years, online shopping will finally find its legs and become a part of our cultural lifestyle. Shopping that is essentially untaxed will be such a powerful incentive to buy online, that if and when we do compel taxes on online purchases, the Net shopping constituency will already be loyal and e-shopping will endure.

Interestingly, the current bill is being backed by a bipartisan team of legislators, giving it a better shot of seeing daylight.

With that level of cooperation, it has now come down to a potential battle of individual states versus the Feds, since states do not want to be told they don’t have support to tax Internet purchases. Take Mayor Baca, for example. He sees poor Albuquerque as the prototype for American cities that rely on tax intake for essential city services.

States Overreacting?

What baffles e-commerce observers the most is the lack of research individual state legislators have done on this issue. Many seem to need the reminder that even the current Internet tax moratorium leaves room for states to tax Internet purchases if they so desire.

The bill now under consideration recommends to states how they can streamline their tax laws. The bottom line is that if enough states simplify their tax laws, Congress will probably facilitate the taxation of all products purchased on the Internet.

So, one wonders what the problem is here. Everything seems to be on track. State and local governments are railing against a crisis that does not exist, particularly when Internet sales still comprise a minimal percentage of overall retail sales.

Borrowing Trouble

With the exception of the honorable Mayor Baca, most Net tax detractors are simply projecting future possible tax losses. Baca may be the only one who has actually stated that his city’s bottom line has been affected by e-tailers. And even he seemed to realize the hollow sound of his own words — after all, he also felt it necessary to blame the money spent at three nearby Pueblo Indian casinos for the city’s financial doldrums.

Clearly, American cities cannot have not felt a pinch from e-tail sales already. So, instead of imagining the litany of e-tail-related problems that might befall them, the same city officials would better spend their time making themselves aware of the trend toward brick-and-click retail success over pure play e-tail efforts.

E-tailing is not replacing retailing. The sales tax is not going to disappear into cyberspace. So let’s not turn e-tail into the scapegoat for municipal budget woes.

What do you think? Let’s talk about it.