The Virtual Taxman Cometh: Looming Taxation Issues for Internet Commerce

By Chuck, Lysbeth B. | Searcher, May 1998 | Go to article overview
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The Virtual Taxman Cometh: Looming Taxation Issues for Internet Commerce


Chuck, Lysbeth B., Searcher


Our Constitution is in actual operation; everything appears to promise that it will last; but in this world nothing is certain but death and taxes.

Benjamin Franklin wrote that to a friend over two centuries ago. Today, he probably would have to add "not to mention controversy over the Internet. " Initially hailed as a great teaching tool, as an interactive, mind-engaging, curiosity-stimulating, knowledge-gathering, community-building gateway to a better, brighter, more informed future -- truly, as some wag put it, a "weapon of mass instruction" -- the Net has perversely established itself instead as a social, political, and economic bone of contention.

Already its impact on society has proven paradoxical. As predicted, the Net has become a communitarian force, uniting people of similar interests but diverse backgrounds across formerly almost insurmountable geographic and temporal barriers. At the same time, it has also broadened, deepened, and strengthened the social and political divisions between many of the "virtual communities" that it helped create. Many now see unlimited access to the Net's universe of uncensored and unreviewed material as the beginning of the end of civilization as we know it. With the best of intentions, all sides have begun to use existing laws, regulations, and treaties relating to fundamental democratic rights such as privacy and freedom of speech -- even the Constitution itself -- to advance competing agendas for the ultimate nature of the new territory the Internet has created -- cyberspace.

We have all heard the arguments that have raged for and against the consumer's right to access, and the seller's right to provide, any and all of the following in cyberspace: pornography; religious and irreligious teachings; government documents and public records; the literature and the images of anarchy, racism, and violence; instructions on how to build bombs and other weapons of mass destruction; images of AIDS victims and aging gurus on their deathbeds and the Hemlock Society's top 10 recommendations for committing suicide.

But, as heated as arguments over sex and death on the Internet have grown, we ain't seen nothin' yet. Believe me, these are mere candle flames compared to the newest international Net conflagration -- the debate over whether or not, and how, to tax these Net-based transactions.

At presstime, a compromise had just been announced between state and local authorities and members of Congress regarding the so-called "Internet Tax Freedom Act" (H.R. 1054 in the House and S. 442 in the Senate). An extremely important piece of federal legislation, this is the first bill to directly address any of the issues related to levying taxes on either the products, the profits, or the infrastructure of electronic commerce within the United States. The U.S. has also placed before the World Trade Organization a proposal to keep "all that can not only be ordered, but also be delivered over electronic networks" duty- and customs-free, worldwide[1]. And in February, the European Commission unveiled plans for an international communications charter aimed at establishing worldwide principles governing business on the Internet, a charter that will have to somehow protect the sovereign authority of individual nations -- especially their right to tax -- and somehow also keep cyberspace an attractive zone for free enterprise[2].

As you read this article, however, the Act may well have passed both the House and Senate, if general predictions hold true; the WTO may have adopted the U.S. proposal as policy; and the EU charter may have begun the implementation process. But whether or not any of these things actually happen is almost immaterial, because you can count on one fact -- sometime soon, somewhere close, the issue will be back before some legislative or regulatory body. That, my friend, is as inevitable as -- well -- as death and taxes.

In short, this is a debate that will continue with us for a very long time; hence, everyone in the information industry needs to know the terms of the debate intimately.

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The Virtual Taxman Cometh: Looming Taxation Issues for Internet Commerce
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