Should Not Become the Ghost of Christmas Past Unrestricted Internet taxation would be an unfair extension of state's powers This holiday season, more consumers than ever will shop online, a reality that has prompted many state and local officials to call for broad new taxing authority. But according to a study released today by the Cato Institute, untaxed e-commerce is neither emptying state coffers nor destroying local businesses. He examines the recent history of both domestic and international e-commerce taxation.
Most states are in fact running large budget surpluses right now.
Allowing states, or foreign countries, to draft remote sellers as tax collectors violates established principles of due process and sovereignty and undermines beneficial tax competition among governments. E-commerce does not represent a serious threat to most traditional retailers. Only 10 percent of American households have ever made an online purchase. And of that group, only 4 percent make more than 10 purchases a year. U.S. policymakers should remain alert to the privacy implications of any proposed changes to the international tax regime, as well as attempts by foreign governments to block the implementation of new technologies, like electronic cash, rather than deal with their evolving tax consequences.