Cha-CHING! Yet Another Internet Tax

The taxation tsunami goes on. Remember the minuscule federal budget cuts of fiscal year 2011? They amounted to $38 billion, a mere four days’ worth of spending. (Actually, it was only $352 million, but who’s counting?) Well, whatever savings you thought you’d realize, they’ve found a way to recapture it — a new tax on Internet sales. The greatest aid to the growth of the Internet was an almost complete ban on taxation by the Internet Tax Freedom Act.  Evidently, the government’s lust for money has reached the point where they just can’t keep their hands off of it anymore. They let it grow into a profitable business, and now it’s time for the government to cash in.

Since a 1992 Supreme Court decision, businesses have been exempt from collecting sales tax on items sold to citizens in states in which the seller has no physical presence. This is a problem for online retailers who have a physical presence everywhere, like Wal-Mart; they have to collect the tax on every sale.

Legislators are, of course, very sensitive to the unfair advantage this gives the smaller businesses. The big boys have to charge sales tax, but the little ones don’t. The sensible solution is to exempt everyone from the tax on online sales, but the government’s default thinking is to extend the tax to everyone. See how this works?

To this point we’ve only considered collection of sales taxes, but there are already several methods of Internet taxation:

  • Internet access tax — there is not yet a federal access tax, but many states already charge them. We’re already paying as much as 20% taxes on phone bills; the Internet access tax would add to that.
  • Telecommunications tax — some states, like Tennessee and Wisconsin, treat Internet access as telecommunications services, and tax them accordingly, just as if they were phone service. That 20% Internet access tax you don’t have to pay, they’re collecting by pretending you’re talking on the phone.
  • Franchise tax — this is just a form of business tax. If you run a business in most jurisdictions, they’ll make you pay a tax for the privilege of existing.

The following are specifically banned until the expiration of the Internet Tax Freedom Act, but as you can see, that doesn’t stop the government from finding other ways to tax:

  • Bit tax — these taxes are based on the volume of data transferred.
  • Bandwidth tax — the faster your connection, the higher the tax.
  • E-mail tax — this has been proposed as a wealth transfer to underdeveloped countries.

We’re taxed enough already. The only solution to the government’s bankruptcy is to stop spending.

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For Liberty,

Manny Edwards

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