FTC Commissioner: Don't tax the Net

In a speech last night to the Silicon Valley chapter of the Federalist Society, Federal Trade Commissioner Orson Swindle called internet commerce "too fragile" for taxation and said he supported Republican presidential candidate John McCain's bill to permanently ban e-business taxes.

Swindle questioned the wisdom of having "a Depression-era tax system imposed on the internet." He said, "Any missteps on our part will have grave consequences and potentially jeopardize the United States' position in the internet economy."

The commissioner, who said he was expressing only his personal views, was in line with current Federal Trade Commission policy to eschew e-commerce taxation.

With more than 30,000 different taxing authorities in the US, Swindle said, opening the door to taxes would potentially create havoc as businesses sought to comply with myriad tax policies. "The cost of compliance [for a start-up] could keep them out of this entrepreneurial market," Swindle said.

Swindle cited studies by Ernst & Young LLP, the University of Chicago and others that claim lost tax revenue today is about 0.1 per cent. However, in response to a question, Swindle said it was "valid" to look at lost tax revenue as traditional brick-and-mortar companies sell products over the Web, thus depriving tax agencies of existing tax sources.

Not everyone in the audience, which was largely comprised of lawyers, was convinced of the burden taxes would place on businesses. J Pat Powers, an attorney and tax specialist at Baker & McKenzie, said, "The argument about the compliance burden is not necessarily true." Powers said one proposal before Congress is to have each state agree to a single user tax within its borders, which would deprive local taxing agencies the power to tack on additional taxes.

"Business would only have to collect one tax for each state," he said. "They know where they are shipping a product, so they'll easily know the tax to collect." Powers added that such use taxes already exist, but consumers never pay them.

The Federalist Society, which hosted the talk, has been described as a "strict constructionist, libertarian" alternative to the American Bar Association. It takes no position on any legislation or political candidates.

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