States and Feds Draw E-Tax Battle Lines

You may never have heard of one Jim Geringer, but as governor of the great state of Wyoming, he is making some serious noise about taxing Internet purchases.

Joining a chorus of government voices from coast to coast, Geringer is prone to sweeping pronouncements about the potential of e-commerce to bankrupt state coffers and the injustice of imposing different tax standards for online businesses vs. brick-and-mortar concerns.

Geringer attended this month’s National Governors’ Association meeting in his position as head of the group’s Technology Task Force. The governor stressed his sense of urgency about Internet taxation, since the current moratorium on such taxes expires in less than 10 weeks.

Not to pick on Governor Jim, but it is interesting to see what governors are doing in their own home states, as we try to assess their individual motivations for opposing an Internet tax moratorium.

Smoke and Mirrors

This year, Geringer proposed a sales tax cut in his state. It goes something like this: In his January address to the Wyoming legislature, he expressed support for a one-half percent reduction in sales taxes if the state’s general fund maintained a US$35 million balance.

Is there a disconnect in the governor’s high profile causes? He wants to tax Internet purchases across the country, but he wants to reduce the sales tax in his state.

The cynics among us might say the half-percent sales tax cut is not a substantial savings for his constituents. And, as governor, Geringer has the greatest control over the state’s general fund, which means that meeting the $35 million requirement is in his hands.

Any pronouncement of a statewide tax cut makes him look like a hero, while taxing Internet shoppers is low risk since most people do not shop online yet.

Big Fish, Little Fish

It is just this type of rhetoric from political leaders that ismuddying the waters for the growth of e-commerce.

At almost the time that the National Governors Association is coming out in favor of taxing Internet sales and access, a U.S. House of Representatives Judiciary subcommittee approved an extension of the current tax moratorium.

The bill stretches the ban on certain online taxes another five years and permanently bars taxes on Internet access.

Governor Jim, et al. will not appreciate this latest development. In June, Geringer said he believes that if Congress extends the moratorium, it sends a message that the federal government is overridingindividual states’ authority to levy taxes.

Level Playing Field?

State legislators who support the idea of taxing Internet purchases often say things such as, “We just want a level playing field between Internet sellers and brick-and-mortar businesses.”

If that is the case, I would suggest there are a number of other issues the governors need to address before they focus on taxes.

First of all, to level the playing field, states will have to guarantee broadband access in all quarters. A level playing field means it is as easy to shop on one channel as it is on another. Without faster access, brick-and-mortar shops are at an advantage. Few people seem to have the patience to wait for heavy graphic-laden pages to load into their PCs.

Further, the Governors must direct their attention to the digital divide. Those in lower socio-economic situations can shop at the local store, but not online, because they do not have access.

Culture Clash

If Governor Jim and his allies on this issue can prove a vast cultural shift away from traditional shopping in favor of online shopping, they might find more support for Internet taxation among congressional legislators.

But the current rhetoric Geringer espouses appears unsubstantiated. Internet retailers do not have an advantage over their brick counterparts.

Geringer likes to say that states will lose annual revenues in excess of $30 billion by 2003 if Internet sales are not taxed. Unfortunately, in public addresses, press interviews and even on his own Web site, he has yet to indicate a source for that figure.

Scare Tactic

It appears to some observers that the outcry over states needing to tax the Internet is a scare tactic meant to shake up the electorate.Governors who support Internet taxation have over-simplified the process.

How, for example, would a pure-play Internet merchant determine how to pay the approximately 8,000 state and local tax jurisdictions, most of which have varying rates and laws?

Getting Real

I suggest Geringer and those who have lined up next to him rethink their position.

First, if they want to tax the Internet, they need to propose a specific manner in which it would be done to satisfy all states and localities. Since they will most likely not be able to accomplish that, they will ultimately see the issue as a choice between a simple tax and no tax.

Second, if they want that much ballyhooed “level playing field,” they need to create that in their own states first, and then discuss imposing taxes.

Five years of a tax-free Internet will not make or break any state in America, but it may afford e-commerce some much needed room to evolve — to the benefit of all.

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