Web Chat: The Internet screams for tax-exemption

The success of e-commerce is a blessing in disguise.

In less than a decade, this burgeoning multi-billion dollar industry has lifted our uncertain economy from competitive to dominant on a world scale. At the same time, success has raised the eyebrows of a government which always seems to be pondering the question: Where is my piece of the pie?

It hit home this week when Gov. Kenny Guinn pledged support of a bill that will impose sales tax on products Nevadans buy online. The bill will only affect consumers who purchase from companies that have "mortar and brick" operations in the state. And Guinn promises he is living up to his pledge of "no new taxes."

His pledge and the premise that this is a reasonable solution to the problems of revenue loss to online sales are ideas that sound good, but present problems.

The first of these problems is that taxation will place hurdles in front of Internet and retail entrepreneurs who have, up until now, enjoyed the business-friendly tax structure that Nevada offers.

If I own Widget.com and wish to run my Internet operation from a retail storefront, I would probably choose to open in Oregon where there is no statewide sales tax. In terms of growth, mail-order customers will prefer dealing with a company that can save them $7 for every $100 spent. Simple economics.

Additionally, the argument that this is not a new tax is debatable. Sure sales tax is not new, but the Internet is not an appropriate industry to drag into state-run tax bureaucracies. Time has taught us that e-commerce is developing on a national and international scale and can usually afford to take the sweeter deal.

This is where California, and Gov. Gray Davis, have taken the initiative to continue leading the nation in the technological revolution.

In September of this year he came out against a bill that sought to tax Californians for Internet purchases. Of course he answers to a constituency that depends more on the success of the high-tech industry.

While most of his politics are screwy, Davis is on the right track. At the time, he told reporters, "In the short term I do not favor an application of the sales tax for the Internet because I certainly don't want to kill the golden goose that's laying the egg."

The idea of taxation follows success. Once an industry starts to find its niche, it is expected to arbitrarily pay for the privilege of turning a profit. And it is easy for politicians to justify the money grab.

They say Internet sales are taken away from sales at retail establishments. But the evidence doesn't agree with that assertion. A 1998 survey by Ernst and Young found that sales tax revenue increased by an average 5.6 percent nationally the previous year while inflation kept costs nearly the same.

Nevada might be somewhat of a special case though, making Guinn's motivations more understandable.

Because we do not have income tax, our state receives proportionately more money from sales tax revenue than most other states. Every dollar gained through a sales tax is a dollar that doesn't need to be taken through some other form of taxation, which tends to hurt casinos - our number one industry.

On the upside, sales tax will be the least of our worries by October next year when the three-year moratorium on access taxes expires. If the federal legislation is not renewed, it could result in government grabbing a percentage of the money consumers spend to access the Internet. The tax could be attached to subscriber's bills like the telecommunications tax is attached to the phone bill.

Like sales tax, it's another bad idea that could hamper entrepreneurship in the high-tech industry.

Questions?Ideas? E-mail at jimscripps@Tahoe.com