Libertarians Say Politicians Shouldn't Tax The Internet

By Jim Burns | July 7, 2008 | 8:25 PM EDT

( - The Libertarian Party said in Washington on Thursday that the popularity of online shopping sites during the Christmas holiday season is a compelling argument why the Internet should remain tax free.

Saying Americans placed 36 million gift orders at those online shopping sites, Steve Dasbach, the Libertarian Party's national director, said, "Politicians shouldn't tax the goose that is laying the golden egg for the American economy. E-commerce is creating jobs, growing the next generation of American business success stories and generating profits of American shareholders. To keep this boom going, politicians should keep their greedy and their destructive taxes off the Internet."

Dasbach also thinks the Internet should be granted a permanent tax exemption.

"The Internet's current tax-free status makes it a nationwide Enterprise Zone that benefits everyone, as demonstrated by the skyrocketing sales figures this Christmas season. Instead of figuring out how to exploit the Internet for the benefit of politicians, we should consider how to protect it for the benefit of all Americans," Dasbach said.

Three other cogent reasons cited by Dasbach for not taxing the Internet are that state governments don't need the money, taxing the Internet could harm the growth of e-commerce, and tracking and collecting such taxes would be a logistical nightmare.

Dasbach also thinks taxing the Internet is unconstitutional.

"The US Constitution gives Congress the sole power to regulate interstate commerce, which means that state governments have no authority to collect taxes beyond their borders. The US Supreme Court has affirmed this principle at least twice, when it struck down laws forcing out-of-state businesses to collect sales taxes. The only good net tax is no net tax," Dasbach said.

Dasbach criticized the National Governors Association (NGA) for demanding that e-commerce be taxed. Dasbach contends that the Association argues that state governments are losing sales tax money when shopping online.

During a recent Washington news conference, Governor Mike Leavitt (R-UT), chairman of the National Governors Association, said his organization's proposal is a 3-year plan that will "streamline" the way sales taxes are collected in the 21st century.

"The Internet", according to Leavitt, "is, in fact, an industry in its infancy but, at some point, they have to achieve economic viability and step up to the obligation that any business has anywhere in America."

Explaining how the system will work, Leavitt said, "Over the next 18-to-24 months, a significant number of states will propose legislation creating a zero burden program. The zero burden legislation will create uniform product codes and sourcing rules that will initiate the process of devising standard definitions and will limit the number of times that local government can change their rates and their rules. This will all be voluntary."

"Businesses who want to use the new system," according to Leavitt, "will access it very simply. They'll simply go to a website, they will register, and, by registering, they will immediately be a zero burden participant in every participating state. Those electing to use it would then choose an administrator, referred to as a Trusted Third Party (TTP), from a list of independent organizations approved by the states to administer and to distribute sales tax collection for the seller."

Leavitt also said the Trusted Third Party (TTP) "provides the seller with software certified by the zero burden states. That means, by certifying, that they will accept it as accurate. The software will be imbedded in the seller's software and it will do three things. First, when a person goes into a website to make a purchase, it will simply calculate the tax on whatever the goods would be delivered. It would charge the appropriate tax to the buyer's credit card at the same time they sent the money to the seller. The sales tax money would then be deposited in the account of the Trusted Third Party who would remit the tax to the appropriate state or municipality."

Leavitt characterized the NGA proposal as "radical simplification." He believes it will lead to a "massive reduction of the burden that is shouldered by retailers today. When fully implemented, the Federation of Tax Administrators indicates and estimates that the savings to American business would be in excess of four billion dollars a year, just in administration costs."

Leavitt also believes the NGA proposal would eliminate the requirement to monitor tax rates, rules and laws in 7,000 taxing jurisdictions around the United States.

"Gone would be the tax audit. Gone would be administrative hearings and contentious disputes, the risk of bad debts, the need to keep warehouses full of records and to police tax exemptions. This is radical simplification and dramatic savings," Leavitt said.

A federal Advisory Commission on Electronic Commerce is studying the taxation issue and is expected to present recommendations to Congress by next April.