Internet Taxation

2020-01-24 13:09:54
2 pages
616 words
University/College: 
University of Richmond
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Essay
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Technology has transformed the world and one important innovation is online shopping. People are attracted to internet shopping because there is no sales tax collection (Varian, 2000). While some report that they have never paid sales tax on the internet, others reiterate that they will not buy on the internet when sales taxes are imposed. Alarmed by the increasing popularity of internet commerce and loss of sales tax revenue, state and government officials are looking for methods of taxing internet commerce (Varian, 2000).

One method is sales taxes based on the sellers location. Here, every state will have a pre-established tax rate for each and every industry. The main side effect of this mode of taxation is attributed to the competition that it will trigger among states, reducing the tax rates. In other words, consumers will be able to identify the businesses with the lowest overall prices for every type of industry and shop from them. Another method is sales and use taxes based on the consumers location. During online buying, companies will establish the location of the customer and include applicable taxes to his bill (Uzuner& McKnight, 2001). This method will require that the international community creates an international organization. This organization will compel businesses to collect sales taxes before transferring it to the state the customer hails from. Establishing an international organization which will audit and monitor the process of taxation is a perfect idea. However, these two methods can be difficult to implement. The other method that can be easier to audit and implement is industry-uniform taxation. There will be a set tax rate for every industry which will be implemented everywhere. There are however concerns that this method might not be fair. The last method is state-uniform taxation. Here, every state accepts to charge the same tax rate (Uzuner& McKnight, 2001).

There are different reasons why states must be able to tax internet sales (ITEP, 2013). First and foremost, failure to tax internet sales would be unfair to the retailers who sell their products in the physical stores as opposed to doing the same over the internet. While the retailers who sell their products in physical stores are required to help in implementing existing sales tax laws, online retailers are avoiding this responsibility. On the contrary, they are allowing their customers to evade paying taxes. Therefore, it means that online-based retailers have an advantage and this is against the spirit of healthy competition. Secondly, failure to tax internet sales will not be fair to the law-abiding taxpayers (ITEP, 2013). Whiles sales tax is levied on all sales, many internet shoppers do not pay taxes they owe given that they are not willing to do so or they do not understand that they have a responsibility to do so. Those shopping in physical retail stores and internet shoppers who legally remit their sales taxes, face challenges paying proportionally more of the tax as opposed to what the case would have been when everyone paid sales taxes. Finally, failure to tax internet sales will reduce government and state sales collection by a very big margin even as the internet continues to gain popularity. In the same vein, it has been submitted that state and local governments are presently losing $23 billion annually in terms of sales revenue (ITEP, 2013).

References

Institute of Taxation and Economic Policy {ITEP}. (2013). How can states collect taxes owed on

internet sales? Retrieved from http://www.itep.org/pdf/pb2quill.pdfUzuner, O & McKnight, L. (2001). Sales taxes on the internet: when and how to tax? Retrieved

from http://www.egov.ufsc.br/portal/sites/default/files/anexos/20473-20474-1-PB.pdfVarian, H. (2000). Taxation of electronic commerce - April 2000. Retrieved from

http://people.ischool.berkeley.edu/~hal/Papers/etax.html

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