Should Purchases Made Over the Net Be Taxed?

FRAMINGHAM (04/18/2000) - A governor of Massachusetts - not this one - once suggested stationing tax agents on the New Hampshire border to snare our residents who were evading sales taxes by buying alcohol out of state. That was a terrible idea. And so is taxing sales on the Internet.

Imposing stifling taxation on this powerful tool of commerce jeopardizes the future of high technology and the jobs it creates. An unfettered Internet will generate more jobs and growing companies, which already produce healthy tax revenues from existing income and corporate taxes.

In Massachusetts, we've made state history with massive tax cuts - 38 times in nine years - worth $2.4 billion and have still seen tax collections soar. It's the high-paying, high-tech jobs, not increased taxes, that allow our citizens to raise families, buy homes and invest in their futures.

But public officials across the nation see the Internet as a cash cow ready for milking to feed overgrown government programs.

In February 1998, I joined Govs. James Gilmore of Virginia and Pete Wilson of California in strongly opposing a resolution adopted by the National Governors' Association calling for a new scheme to collect sales tax from e-commerce.

Instead, we urged passage of the federal Internet Tax Freedom Act that placed a three-year national moratorium on new taxation of the Internet. Congress should make that moratorium permanent.

Local and state government officials falsely argue the Internet is cutting into their tax base because Internet sales hurt traditional retailers. But a 1998 Ernst & Young study found otherwise. Ernst & Young concluded that 63 percent of total e-commerce sales to consumers are sales not taxable in most states. That same study also found that 60 percent of the taxable business-to-consumer Internet sales are substitutes for other types of sales, such as mail-order catalog sales by out-of-state vendors, that do not currently generate sales or use tax revenue.

In addition, our Main Street retailers continue to see growth in sales despite the e-commerce trend. In Massachusetts, sales tax revenues grew more than 8 percent in the last six months of 1999. A brick-and-mortar retailer can offer consumers service they don't get online, such as taking home the merchandise immediately and avoiding shipping charges.

Here's another reason to think taxing the Internet is a bad idea: We don't need another Internal Revenue Service. But that's what proponents of taxing e-commerce want to set up. In a frightening Big Brother scenario, they want to establish an enormous bureaucracy to track electronic sales and determine which of the thousands of state, county and local governments get your tax dollars.

Tax collectors could electronically track your purchases. That's unacceptable.

The expansion of e-commerce has great potential to create jobs and fuel economic growth. It's foolhardy to jeopardize our future with ill-advised taxation.

Cellucci is the governor of Massachusetts. He can be reached at Goffice@state.ma.us.

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