outlawauron said:
The taxes you pay for internet service are not a full 9% and typically not on the entire cost of the service. The ISPs only charge you tax because they have local offices and teams in said city or state that would owe tax to the state they do business in. Digital services have no people or no offices that would subject to taxes. No one pays taxes on Amazon, Netflix, Hulu, PSN, XBL, etc. unless they have an office or distribution center in your state. |
That sounds like a tax avoidance loophole to me. A consumption tax is a tax levied on the consumer for every dollar they spend on goods and services, it's not a tax levied on businesses. However it is a tax that businesses collect and pass on to the relevant tax authority, because that's the most cost efficient way of collecting the tax. So a consumption tax for online sales and services should be paid based on where the consumer resides, not on where the business resides. It causes an economic perversion if consumption taxes can be avoided based on the location of the business side of the transaction. This is an easy enough loophole to plug when the service provider and the consumer operate within the same national boundary, because they are subject to common national tax policy legislation. It's a bit harder when the service provider and consumer are in different countries. However some countries are managing to levy consumption taxes on overseas internet services and purchases. It is simpler when what is being purtchased is hard goods. We have a $200 threshold for goods purchased offshore over the internet (like from Amazon), the tax is collected when the goods arrive. The threshold is $200 because below that the cost of collecting the tax is more than the revenue. It's less easy when what is being purchased over the internet is an online service, but I believe countries are starting to deal with that. I would think it would require a federal law along the lines of: if a state or city derives revenue from the sale of goods and services, then the state or city may elect, by state or city legislation, to collect taxes from goods and services purchased from businesses based outside of the state or city's tax jursidiction. The federal policy would have to be a "may" not a "must" because it should still up to the state or city to decide whether to collect such taxes.
Whatever you say about the evils of taxation, it's important for tax to be a level playing field as much as possible so as not to create economic distortions and unfair competitive advantages. If I have to pay 10% tax for a service because it comes from a local provider and I don't have to pay the tax if it comes from an out of state/country provider, then it's highly likely the service will be up to 10% cheaper from the out of state/country provider. Guess which provider most people will choose? That creates a market distortion and unfair competition due to a tax policy loophole. That's a real problem with taxes, and should be addressed so as to remove the distorting effect. You could address the distortion by removing taxes based on internet transations and applying them as a levy on having the internet. So you add either a % or a flat dollar amount to every internet connection to balance out the loss of revenue from having no transactional taxes. Trouble with that is you're then distorting the market by incentivising buying over the internet at the expense of brick anf mortar retailers. If your paying an internet transaction levy up front, then you'll want to make maximum use of that so as to avoid paying direct tax on goods you buy from local shops. So the best level playing field solution is makiing sure the consumption tax is collected on every internet purchasing transaction, whether it's goods or services.
Conceptually internet transactions are no different to real world transactions, so from a tax policy point of view they should not be treated any differently.
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