-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- New Website http://www.conservativehq.com/chq/displayarticle?articleId=44 Date Posted: 01/13/2000 Constitutionally Right Mark Fitzgibbbons ConservativeHQ.com INTERNET SALES TAX - GILMORE'S GOT IT RIGHT Don't buy into the arguments that brick and mortar, mom and pop businesses would be at a disadvantage if Internet sales aren't taxed. Just the opposite is true, but a fair tax system will require some political fortitude. Governor Jim Gilmore of Virginia has had the foresight and guts to recommend a permanent moratorium on sales taxes on e-commerce. Gilmore was appointed by the Congress as Chairman of the Advisory Commission Electronic Commerce. Let's hope the other members of the Commission show the same wisdom, and back Gilmore. Applying the sales tax to any interstate commerce is a nightmare. The sales tax was established as a convenient method for the government to get into your pockets at the point of any sales transaction. The tax is applied at the location where the transaction is made, i.e., the place at which the consumer takes possession of the item. Sales taxes just don't fit well or make sense when the sales are made interstate. Many small businesses are using the Internet to expand their markets, in fact more than fifty percent of all small businesses are already online. It would be crazy to require small businesses to file sales tax returns in the 45 states that have sales taxes or the 6,000-plus other taxing jurisdictions in the United States simply because those mom and pop stores have a website and sell more products--more conveniently--to more people. Compliance with the tangled web of the various sales tax offices would do much more harm to small business than the corporate conglomerates. And the notion that consumers should pay a use tax in their state on items that they buy over the Internet from other states is absurd, and begs for noncompliance by anyone but the most pious, honest--and organized taxpayers. The framers of the Constitution knew that the tendency of government is to expand, often at the cost of common sense and the best interests of the people. They created the commerce clause in recognition of our federalism so that states would not set up barriers against, or too many burdens on, interstate commerce. The commerce clause gave the Congress the sole power "to regulate commerce among the several States". The framers knew early on that state governments and smaller jurisdictions could make interstate commerce too burdensome for a national economy. States can regulate commerce, but must do so in a way that does not burden interstate commerce, certainly not more than the commerce that takes place solely within the state. Fortunately, the United States Supreme Court has already given some guidance about sales taxes and interstate commerce. In Quill Corporation v. North Dakota, the Supreme Court held that companies which sell products through the mail using catalogues cannot be compelled to file sales tax returns, and pay sales taxes, in states where they are not located but merely ship products to consumers. The Court held that states cannot tax out of state companies that don't have a "nexus" with the taxing state. Otherwise, such a tax system would violate what has become known as the "dormant" commerce clause of the Constitution. The dormant commerce clause, which is a concept created by the Court, is what the courts have used to examine state regulation of interstate commerce that the Congress has not already regulated (I know it's hard to believe that some such commerce still exists). The dormant commerce clause essentially means that states cannot place too many burdens on the flow of interstate commerce in a manner that discriminates against interstate commerce. Like the direct mailers in the Quill case, businesses that engage in interstate e-commerce have no nexus in the states where many of their buyers are located. Therefore, they should not be compelled to file tax returns in the myriad states where consumers, through online shopping, buy their products. Those who advocate taxing interstate e-commerce are advocating anti-constitutional goals. Advocates of e-commerce sales taxes say that companies that sell online have an advantage over those companies that do not sell products through a website because the sales tax paid at brick and mortar stores is a disincentive to shop there. They're right in that regard, but that doesn't mean that taxing e-commerce sales is the solution. First of all, businesses--even small ones--that don't have websites will probably go the way of the dinosaur. So we shouldn't punish the small business owner who uses a web site to sell more products. Secondly, why can't states simply say that the fair thing to do is eliminate the sales tax altogether? There are states that operate and provide all of their needed services, and still don't have a state sales tax. We need not worry about the "lost revenues" the e-commerce tax proponents fret about. One thing we know for sure about government is that it knows many ways to generate revenue for itself. Government always seems to find the trough. Sales taxes were established as a convenient, almost camouflaged way for businesses to play tax collector for the state. But a tax on e-commerce would certainly not be convenient. And it would hurt small businesses the most because they would need to hire accounting departments, rather than a sole bookkeeper, to keep records and prepare tax returns simply because they have the common sense to use a website to market and sell their products. My favorite store in the world (not simply my favorite candy store) is the Savannah Candy Kitchen. It's a relatively small operation that I happened to stumble upon during my only visit to that beautiful city. They send me a brochure every year, and I have made several purchases for myself and as Christmas gifts. Their website does not yet allow me to buy my favorite candy in the world, but I'm sure it won't be long before that changes. I'd hate to think that I would need to file a sales and use tax return simply because I love candy that I can get only in Savannah. And I certainly don't want that small business to file a tax return in Virginia merely because one of its most admiring customers is located there. Any sales tax system cannot be applied to the new way of doing business without harming consumers and small businesses in some way. Governor Gilmore says it best in his Policy Statement, "No Internet Tax", found at the Commission's web site (www.ecommercecommission.org). He says that "[i]n the Internet economy, government at all levels must change its policies as well as the way it operates." Governor Gilmore is not only advocating a pro-small business position, but he is correct under the commerce clause. Utah Governor Mike Leavitt, a Republican, and some of the other members of the Commission who are advocating taxing e-commerce transactions simply don't get it. The Internet, and e-commerce in particular, is not the place for flawed principles and stale ideas. --------- Mark Fitzgibbons is an attorney. He is President of Operations and General Counsel for American Target Advertising, Inc., which is a direct marketing agency, and is General Counsel to ConservativeHQ.com, Inc. 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