The Treasury Department released a report Thursday outlining the Clinton administration's opposition to new federal taxes on Internet transactions.
"Our view is that tax law should not impede the development of electronic commerce," said Calvin Mitchell, deputy assistant secretary for public affairs.
But the report, which promotes treating Internet transactions like any other, sidestepped the issue of state and local governmental proposals to impose new taxes on electronic commerce. With more than 30,000 cash-starved state and local taxing authorities, the fear is that the Internet will be the first place they'll look for revenue.
"The Internet offers real opportunities for both businesses and consumers," said Bill Bluestein, director of new media research for Forrester Research in Cambridge, Massachussetts. "But if it gets all mucked up with confusing tax laws, the flower will die before it gets a chance to bloom. Taxes on the Net should be low and simple so you don't take away the primary appeal of this new and developing channel."
Internet service providers agree. The Interactive Services Association, a trade group, has issued a report on guidelines for taxing the Net, and board members are working with state goverments to streamline the process.
"States and local juristictions are going off on their own but they need to move more slowly and understand the issues involved so they don't place undue burden on emerging technologies," said Sara Fitzgerald, member services director for ISA. "Nobody likes taxes, but if they are inevitable, we have to develop a uniform, fair, and simple policy."
State and local governments looking to levy taxes on electronic commerce would face complex legal and technical challenges. Most Internet-based companies, Bluestein said, would prefer server-based taxation. In that case, the state or locality in which the server is located would levy a sales tax.
"Where does a transaction in cyberspace take place?" Bluestein asked. "At the location of the computer user or where the server is located? It would be much easier if the server were taxed."
This year, in the United States alone, commerce conducted over the Internet was valued at US$500 million. By 2000, it is expected to grow to US$70 billion.
In the borderless realm of the Net, another more complex question remains: How to streamline local taxes with those imposed by other countries. European countries such as France and Germany are already developing taxation plans for the Net, Fitzgerald said.
The report, prepared with the assistance of Vice President Al Gore's office and the National Economic Council, was posted on the Treasury Department's Web site Thursday.
