Usa: problems with the taxation of ecommerce

Expert commission fails to reach agreement on controversial ie

Although the u.S. Government had lobbied for tax freedom for e-commerce in international fora such as the wto (prere on the wto), the ie remains controversial even within the u.S. In october 1998, the "internet tax freedom act" the new law, which guarantees tax exemption for online sales until october of this year, was enacted, but an expert commission with representatives from politics and business was also set up, which is due to report to congress by october 26. April should develop recommendations for the further procedure. But at the moment it looks as if not even an official report with recommendations will be produced.

In fact, one of the most important sources of revenue for the states is at stake. The value-added tax, which is levied at different rates in the states, brings in $150 billion a year, almost half of the total tax revenue. Even if e-commerce is not a major factor today, it could be a different matter in a few years, for example, when higher income taxes will be necessary. The tax exemption for e-commerce is also criticized by the companies, which still have to pay additional taxes and see themselves at a disadvantage, even if they also rely on e-commerce. It is considered absurd, for example, that goods delivered in non-digital form, such as magazines, cd-roms or dvds, should be exempt from vat according to a proposal. Lisa cowell of the e-fairness coalition criticizes the fact that this would have put the "hustler magazine would be exempt from tax while people continued to pay taxes on shoes and food for their children".

Currently, companies are taxed where they have a registered office and a physical presence. However, how this should be determined for e-commerce companies is a controversial ie. Businesses that have warehouses or stores in many states were clearly disadvantaged by an e-commerce tax holiday compared to internet retailers that have a physical location in only one state.

At the last meeting of the expert commission in dallas, no agreement was reached. For the adoption of a proposal would require a two-thirds majority, which was not achieved for the continuation of the moratorium. The coalition of politicians and businesses that advocated for a tax exemption achieved only 11 votes out of a total of 19, but needed 13.

Apparently, a dispute arose over a computer company claiming tax exemption for sales over the internet, even though it also owns stores where ordered goods can be returned, which eventually prevented an agreement from being reached. As ted waitt, the chairman of gateway, said in an interview, it was his company that sells computers and accessories over the internet, but also in stores. Mike leavitt, governor of utah, criticized that this would lead to a "permanent privilege" by certain companies. While all did not like having to pay taxes, "but if we have to pay them, then at least they should be fair." leavitt believes that the question of taxation of goods should be independent of the way in which they are traded. The proposal, which is supported by leavitt’s coalition, calls for the creation of a "level playing field" for taxing sales over the phone, through email or the internet.

The dispute also arose because of the two-thirds majority requirement. The majority opinion, represented by the coalition of james gilmore, governor of virginia and chairman of the commission (virginia pioneered the introduction of a controversial software licensing law), nevertheless wants to propose to congress a five-year moratorium on internet taxes. Gilmore is also calling for standardization of the sales tax, which is levied differently in each state and affects different goods. The representatives of the u.S. Government abstained from voting because no real consensus was reached on a proposal. Even presidential candidates bush and gore have been vague on the ie, so as not to alienate anyone.

Now the commission, which has changed its rules accordingly, wants to meet again within the next few days to reach an agreement. At least for one proposal this could be achieved, namely the abolition of the three-percent tax on telephone charges, which was introduced in 1898 to finance the war against mexico. In fact, 16 members of the commission are in favor of the abolition.

The proposal supported by the majority, in addition to the simplification of the vat regime, the abolition of taxes on telephone charges, the prohibition of taxes on internet access and the extension of the moratorium on internet taxes, also provides that any possible regime for the taxation of e-commerce must provide for the collection of as little personal data as possible from customers. Taxation could lead to authorities getting more information about citizens’ behavior on the internet. The report, supported only by the majority vote but not by the required two-thirds majority, provides that individual members’ positions on internet taxation be included in it.

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