New US legislation that would levy a 5 per cent tax on goods sold over the Internet could end a three-year moratorium on new Internet taxes.
The Sales Tax Safety and Teacher Funding Act was recently introduced by Senator Fritz Hollings, a Democrat from South Carolina. If approved, the bill would impose a retail and excise tax of 5 per cent on goods sold over the telephone, through catalogues and over the Internet, said Maury Lane, a spokesman for Hollings.
According to the bill, which now goes to the US Senate Finance Committee, funds generated from the new taxation would be used for teachers' salaries.
"The 'Net taxation bill is not as scary as everyone thinks it is," Lane said. The bill proposes a federal tax which will generate funds that will be funneled into state government. Local governments are losing a lot of interstate tax," he said.
However, some industry advocates feel that the proposed 'Net taxation bill is unnecessary and an infringement of the country's Internet Freedom Act.
Signed into law last October, the Internet Freedom Act placed a three-year waiting period on US federal, state and local Internet taxes and established the Advisory Commission on Electronic Commerce in order to study the impact of such taxes.
Representatives from several Internet groups said they were opposed to the proposed tax legislation.
This is a real threat to consumers and companies that wish to transact business over the Internet, said Shari Steele, a spokeswoman for Electronic Frontier Foundation, a San Francisco-based consumer advocacy group.
"'Net commerce is just picking up speed and people are getting used to buying goods over the 'Net; this is the time to encourage growth, not discourage it," Steele said, adding that imposing taxes online will slow down the adoption of online commerce.
"The US government can't be imposing sales tax on something like this -- that would pose a constitutional problem," she added.
Martin Burack, a spokesman for the Internet Society, said more time is needed before the country should consider imposing taxes on Internet transactions -- maybe another year or two. "The market volume is just not there yet," he said.
In addition, the government has not built a strong enough case to show that the Internet has severely impacted local revenue, Burack said. Not taxing all mail-order sales is a much larger issue than taxing online sales, he added.
"Senator Hollings has done some good work; however I feel that he may be jumping the gun on this issue," said Burack.